TechWag

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Sometimes too many opportunities can hit too fast, causing a severe drain on the resources that a bootstrapped company can manage. What to do when there are too many good things happening, and you can only afford to do what you need to do.

Sometimes good things happen far too quickly for a small bootstrapped startup to manage. Usually good things mean an outlay in money, either to purchase inventory or to purchase critical skills that are needed for a short duration of time. When you are a bootstrapped company, you have to think in terms of cash flow, and you have to think in terms of what you can afford today.

Today my small company has a deal to pick up an entire archive of product that will significantly enhance the company. The bottom line cost to that is $7,500, but at the worst case scenario will return at least 150% of the initial outlay over the next year. The median case is a return of 250%, or adding some $18,000 in just regular old fashioned profit. I have multiple ways of managing this direct cost, knowing that it will boost my sales Month over Month by an additional 21%. In other words, it is deal I really cannot afford to pass up. Even at worst case, it is still going to represent at least a 10% jump in sales month over month.

Now this will kill the cash flow for the company from the time the deal is committed in July to at least the end of November, think about that. All the free cash in the company, everything the company has will be tied up for five months. It will be like having no sales, not selling anything, not being able to buy anything for five months. This also hits the critical for my business holiday season, I might not be able to afford to do all the things I need to do to be ready for the holiday season which could put me at a disadvantage.

Here is what I need to do, decrease the initial outlay from $7,500 to a more manageable chunk of change. How I can do that are a number of options available to me to do this.

1. Go to the bank – see if my own personal credit rating can get a loan for $8,000 dollars that will be backed with the tangible goods that I am going to purchase. Then pay that money off by the end of the year to build up the company’s credit. Plan on paying it off, but if cash flow gets too tight, I can make just the regular payment of approximately $733.34. There are ways of dealing with this as well, do this over a two year loan period to cut those payments by half to $370.00.
2. Hit up family – in a tight economy this might not be the best thing to do. But a resort is to hit up the friends and family routine and see if I can micro loan my way to the bigger amount of money I think I will need.
3. Micro Loans – micro loan my way to where I need to be through Kiva or other P2P (Person to Person) banking. In this case it might work, but then it might not.
4. Not do the deal – while not doing the deal is an option – it is not the preferred option, as I will not gain any benefit other than keeping company cash flow on the same even keel that it has been for the last seven months.

Cash flow is king in this case, with cash flow I can keep the monthly bills where they need to be, and do things the way that they need to be done to keep the company ticking over and doing good things. The problem is that I cannot afford to kill off my monthly cash flow with a huge midyear purchase without possibly compromising sales down the road for everything else we do sell.

Right now I am tending to go with the bank and get an $8,000 dollar loan. The reason for getting 8K is that I will also get the first payment with that. I’ll outlay $7,500, but have something for the first payment to be made (especially if I go with a 24 month loan which is likely) because dollars will not be rolling in right off the bat. It will take time to integrate the archive into the products we sell; I have to take that into account. There are always going to be costs that are also unseen, so a little extra fudge room helps out here just in case bad things happen and there is a cost overrun.

Even with the credit markets tight, I am leveraging a physical product at a significant discount. The loan will be secured against the product/archive that I am getting. That gives the bank collateral if things go horribly wrong, and gives the loan a leg to stand on outside of my personal ability to pay the loan off. I have a great credit rating so that will not hurt as well. This also gives the business an opportunity to build its own separate credit rating with a minimal risk to any downsides that could possibly go along with tying personal and business banking together. Credit markets are tight, very tight right now, but with tangible collateral, a great credit rating, and a huge growth in the company that has been sustained over the last year, the bank is looking like the best option today. Sometimes the bank is the best option, and in this case, it probably is, but have to wait and see what the bank says.