Cash Flow - and the Perils of Self-Funding

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“Don’t take this the wrong way, but you’re not the one who has to stay up producing and bottling until 5AM,” Casey says quite sweetly. He has a point. As the one handling production, Casey is bearing the brunt of our seeming endless battle between inventory & cash. And as someone who suffers if I have to stay up past 11PM, I’m especially empathetic to this point.

Positive press and awareness over the past few months have been nothing short of incredible. Additionally, we’ve been fortunate to self-fund our growth thus far. Leading into the holiday season, we’ve already confirmed a few major press pieces. This should result in significant sales, which we’re excited for. But there is a catch. As production batches have doubled and doubled again, cash flow constraints continue to grow at the same rate. 



Here’s how it works:

We’re told by CNBC to expect website-crashing levels of traffic once Casey appears on Power Pitch (must be that beard!). Even if that traffic converts at a low rate, we should be prepared to ship at least a couple thousand bottles.

(2,000 bottles) X (~$6.50 cost per finished bottle) = $13,000
Which leads me to cash flow. First, we don’t have $13,000 in cash. Second, we actually need more than $13k because holding that much inventory requires storage space, transport options, etc. Third, even if we did have a Walter White level of cash available, I’d be reluctant to lock up so much of our working capital in static inventory.



However, as the CNBC event will air near the holidays, we don’t want to disappoint first time customers with backorders and delays, nor repeat customers buying Bees Knees Spicy Honey as holiday gifts. So what are our options?

Options

1. Raise money from investors
2. Use personal credit cards to buy 29 days of cash flow
3. Explore better efficiencies within current operations
4. Find a loan

Our Solution

1. Investor Funding - I am critical of investor money at this stage for a few reasons. Most obviously, I’d rather keep a higher percentage of ownership under control so we can give it to future employees rather than investors. Holding out longer will also allow us time to prove a few key metrics, which will result in a much higher valuation (Again, retaining more ownership). Also, raising money is rarely accomplished quickly or easily. It is almost always a more time intensive and painful process than anticipated – ask anyone who’s raised money. At this stage we need to focus all of our energy on growing a sustainable business; not pitching investors. Most importantly, raising money rarely solves problems. Rather it would enable us to fund solutions.

2. Credit Cards - Despite many stories citing entrepreneurs who maxed out credit cards to fund their now successful companies, this is a slippery slope. Maybe we let one month slide by without a payment because next month’s revenue will catch us up. But a 15-30% finance charge is nothing to laugh at, and accumulates quickly. And if MixedMade fails, that debt will stay with us personally.

3. Efficiencies - We analyzed our supply chain and realized the bottleneck was getting plain bottles ordered and screen-printed (which is heavily dependent on stock levels and screen-printing capacity). Once bottles are printed, we can have finished product ready to ship in a maximum of 3 days. After realizing this opportunity to make our process more efficient, we began stocking printed bottles in larger quantities, which means we can have those 2,000 bottles ready to ship in 3 days rather than 2-3 weeks. Better yet, an investment of less than $1,000 allows this efficiency at a fraction of the $13,000 to create a stock of finished bottles, but allows us to create finished product only 2-3 days slower. Win!We also decide to lean on our vendors a little more. It turns out our screen printer is happy to hold some of our stock of printed bottles for a limited time. This saves us the cost of more storage space and allows us to build a bigger stock of printed bottles. We’re also attempting to purchase more of our ingredients and components on terms rather than up front payment, again helping with cash flow. We have more leverage to make these requests now that our vendors (partners) have seen consistent month over month growth, and on-time payments, in the 9 months we’ve been working together.

4. Loan - While loans aren’t easy for small businesses to come by, there’s usually a way. Given our intimate knowledge of the business, we decided to personally give the business a $5,000 loan. While this feels a little bit like cheating, the truth is this is the cheapest and fastest capital we can access at the moment. And this is a moment when we want to focus on building the business rather than fundraising.

Lastly, we decided to segment our thinking around customer sets. While we’d love to ship ever order the day it’s received, we simply cannot afford that luxury with major floods of orders driven by great press. We realized that there is an expectation that may differ for customers depending on where they came from. For example, when you buy a product you’ve just seen on Shark Tank or Kickstarter, you practically expect to wait weeks or months for delivery. Conversely, when you read The New York Times’ holiday gift guide, you expect to be able to purchase those items and receive them immediately.
With those expectations in mind, we are mindfully planning and building our supply to accommodate an influx of orders driven by gift guides, regular press events and repeat customers. We have conceded that we might be forced to deal with a number of delays if we receive thousands of extra orders from Power Pitch, but those customers will likely be more forgiving. Hopefully.
 
Lessons Learned

1. Cash is King: Understanding cash flow, and its effect on business operations is critical to building a sustainable business.
2. Know Your Supply Chain: Mapping out your entire supply chain will help uncover areas where you can increase efficiencies, thus improving cash flow.
3. Love Your Vendors: Talk with your vendors or partners to see if there is an opportunity for them to help improve your processes. Treat them like a valued partner from day one. Don’t wait until you need a favor.
4. Don’t Fund “Problems”: Money doesn’t solve problems. Solutions - well thought-out strategic solutions - solve problems. Sometimes solutions require money, but figure out your solution before throwing money around.

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Haven't tried our Bees Knees Spicy Honey yet? Go ahead, order a bottle or two. We're so confident you'll love it, we'll give your money back if you're unhappy for any reason.