Client Situation
A three-year-old company that marketed and distributed branded small appliances to promote a healthy lifestyle was growing rapidly. Their product was in high demand and they had $28M in sales in their existing channels of seminars and direct response TV (infomercials). The company wanted to launch a catalog and rapidly expand into wholesale on a nationwide business, but hadn’t considered how the move to wholesale would change the economics and timing of their cash flow. Their CFO, now a E78 executive, joined the executive team just as the company was creating its first catalog and beginning its expansion into wholesale.
The E78 executive recognized that despite the company’s high velocity growth, the move to wholesale could lead to them going out of business if it were not managed correctly. He immediately organized an analysis of the company’s financial position and cash flow, which took several weeks. Upon completing the analysis, he let the owners know that they were quickly running out of cash and showed them the projected inflows/outflows after integrating the potential new sales channels into the projections. They had about 6 weeks of operating cash available. The company did not have a bank line of credit as its sales to date were via customers’ credit cards or personal checks.
Solution
The E78 executive helped the company identify the shortfall that they were facing over the next 6 months and identified three areas where they could potentially obtain cash to tide them over as they made the move to wholesale:
- Customers – specifically large national retailers
- Vendors- Factories and suppliers
- Banks
A member of the executive team was assigned as the point person for each area.
The company was able to get advance payments from some of the national retailers in the form of letters of credit or cash advances. They negotiated extended terms from their largest factories and suppliers. They also obtained a substantial working capital line of credit with a large national bank.
Results
The E78 executive’s insight and quick execution of financing solutions enabled the company to successfully launch into the wholesale business. Their sales grew from $28M to $60M that year and the company enjoyed record profits.
