Even if a company is profitable, it can be cash poor. Money is not coming in as fast needed. This seems to be a common problem especially with small, start-up operations. I have not worked at an entrepreneurial company. However, here is a case about a start-up company with cash flow problems. Robin Sauve and her husband John started a company, Barkley Logistics Inc. The company helps its clients to rush delivery of merchandise and other time sensitive materials. Profits and cash were slow in coming in. However, the company was getting a lot of work and was having difficulty coping because it lacked cash. It doesn’t have any cash anymore to sustain operations. Without the cash, it cannot sustain its sales. It needs to continually find sources of funds for the business to keep going until the profits come in. This may be a problem that the entrepreneur needs to address. For one, the business needs a faster way to collect or convert the profits into cash. Also, the owner may a lack of expertise and access to various channels. In the meantime, the entrepreneur will have to find the cash that it urgently needs. The lack of cash had already affected the company already. Some clients have refused to give them additional projects. The company would need fresh funding. Unfortunately, the owners could not borrow anymore. They could go personally bankrupt as a result. Robin Sauve has already put their personal assets on the line and could not borrow anymore. They cannot afford any further losses. The owners can get new investors and may have to start the business anew.
As a start-up company, Barkley would not have access to many sources of funds like borrowing from banks. Neither is it in a position to adjust its marketing and operations as Jackie would have done. The start-up company has not yet reached that level of operations. It still needs to build itself up so it will have anything to manage. So, its problem is where to get its cash—bank borrowings or investment
So, to save herself and also the company, the best solution might be to bring in a new investor into the company. Sauve would protect herself from any further liabilities by borrowing more from banks that could lead to both company and her personal bankruptcy. The owners should try to negotiate with their banks so that interest rates could be lowered. This is a better alternative for the banks. If the company goes bankrupt, the banks will also be the losers. In addition, the company should develop programs to accelerate payment by clients. Discounts on early payments could help increase their cash flow. The owners should also try to find possible investors to the company. This would not only allow the company to sustain its existing operations but even expand.
Response to Elliot
The problem in this case is similar to yours. However, the entrepreneur in your case may be at a greater advantage than the ones in my case. The owner in your case have a ready investor. She just needs to say yes or no. Meanwhile, the owners in my case still needs to look for investors. They may find that investor quickly because the business seems to have potential and may do well. The just ran out of cash.
Response to Jackie
The company in my case still needs to build its business. Its problem is not to find clients; it already has them. Its chief problems is cash and how to keep and maintain its existing clients. The solution is two-pronged. Accelerate collection and get new investors.
Works Cited
Barret, Amy. "Case Study: How to Restart a Company." Inc. 1 Mar 2011. 10 Oct 2014. <http://www.inc.com/magazine/20110301/case-study-small-business-start-up-financing.html>.
Fraser, Jill Andresky. "Cash Management Basics." Inc 1 Oct 2000. Web. 10 Oct 2014. <http://www.inc.com/guides/start_biz/20675.html>.
Inc. "How To Manage Cash Flow." Inc. n.d. Web. 10 Oct 2014. <http://www.inc.com/encyclopedia/cashflow.html>.
