Pants With Only One Pocket…
I heard a story about a business owner the other day and the story was too familiar. It seems that the business owner needed working capital in his business, working capital that he could not get from his bank.
So, he sold a piece of property that he owned personally and put all the money into the business to meet his company’s short term capital needs. Now, you may say, “What’s wrong with that?”
What is wrong with that is that he is wearing pants with only one pocket! Anything he gets goes into that one pocket and out of it he pays both his personal and his business expenses.
“Well,” you might say, “what could he do?”
Glad you asked. He could make his business pay its own way. While it is fortunate he had the land to sell and could use the money to meet payroll in his business, he can only sell that land ONE TIME. He will have to meet payroll again, soon. Where is that money going to come from?
What he should have done is to take a look at his hidden assets, his accounts receivable. Since he has good accounts receivable to credit worthy business clients, he could have sold those and created immediate cash flow to meet his short term needs.
Funny thing is, next month or next week in his case, he will have more receivables to sell again to meet the next payroll, and so on and so on. Thereby, his company pays its own way in the world and he could have kept the land on his personal balance sheet.
Last week a new client came to us and he had discovered his “hidden assets” because a very alert banker pointed them out to him. You see, he was also having cash flow issues.
Oh, he had the money to make payroll it just wasn’t “there” in the bank. Like the man with one pocket, he had good accounts receivable but they never quite collected on the same day his payroll checks hit his account.
His banker saw the consistent and expensive overdraft fees the client was paying and suggested that he call us. We went to his business on Wednesday and by Friday we had moved money into his account to fund payroll…no more overdraft fees!
Does it cost money to sell us your accounts receivable? Of course. But it does not rob your personal balance sheet and it does not cost $35 for every check that clears.
When a business is growing by leaps and bounds or when a business is new or when it is coming out of the greatest recession since “The Big One”, you have to be creative. Look to the assets you have and use them to make your business independent. Make it stand on its own, pay its own way.
After all, that is what we make our kids do, right?
Give us a call.
Brenda
