Working capital

You're going to have Q of E fees.

They're going to want you to have WC, working capital.

All right, so these are kind of the four horsemen, right, of how much money you're going to need down because it's not just 100K now.

So now you've got the down payment, which is going to be the 10% that we just talked about.

Now the broker that's doing it, they're going to get paid by the seller.

So you don't have to worry about that.

So 15 K is going to be the hard costs that you have associated with this and then working capital.

So there's a bunch of different ways that you can work working capital into the deal.

And this mathematical reality is explored brilliantly in one of the Harvard simulations involving a fictional company called Sunflower Nutraceuticals.

Yes, the working capital simulation.

Uh.

This is where theory meets raw operational stress.

If you invest heavily in aggressive growth and acquire new customers, how does that impact your cash position?

If you hold too much inventory, how does that drain your liquidity?

I wanna break down that concept of working capital because the Harvard chapter titled Cash is King notes that mastering working capital is the foundation of massive successful businesses.

Like Costco.

Now it's true, the business did continue to grow.

However, guess what happened? What he learned is that when I give my team a good amount of working capital and leave it in the business, somehow it just gets consumed.

And sometimes it gets consumed by projects that don't end up actually producing revenue.

And so here's what happens.

Because there's this good cushion of working capital, the testing hypotheses or special projects that get added into the business aren't as robust.

Because even if we're wrong on this test, it's okay.

We've got another million dollars that we could light on fire and test this thing out.

But guess what? If you constrain the business by actually pulling money out of the business, now leave enough working capital to keep the lights on and keep growing, obviously, but not a war chest, of working capital to where the team's like, oh, yeah, we're sitting in a really good spot.

Today's guest is Bill Ferrier, founder of Ready, Set, Collect, and a respected expert in the credit and collection industry with nearly 40 years of experience.

Bill has dedicated his career to helping businesses improve profitability, strengthen cash flow, lower their sales outstanding, and unlock working capital trapped in accounts receivable.

His philosophy is simple but powerful.

Collections should not destroy customer relationships.

It's going to turn into a problem.

It's going to impact your cash flow, and it's going to impact your bottom line, and it's going to have a negative effect on your profitability.

Your working capital is going to be tied up and passed to invoices because perhaps the people that you've got in place collecting aren't as strong, skilled, and talented as they need to be.

And that's only achieved through one natural ability, as far as confidence, how they speak, that kind of thing.

My partner and I, we put about...

Pretty much everything into working capital to to get it up and running.

And so there definitely is that financial aspect of the risk.

And then two is we did raise a little bit of money in February to recap because it's very hard to get a line of credit on a distressed business.

So we raised a little bit of money and we have a good chunk of working capital, but it would pretty much wipe me out if it went to zero.

And we couldn't recoup.

So the projection is if we sold everything for parts, we would mostly break even.

It's beneficial for him because obviously he gets preference, so he's on top of the capital stack because there's no acquisition debt.

And without the kind of financial backing that Tanishq or Kalyan had, expanding at the same pace was always going to be difficult.

But there was another problem too: working capital.

TBZ makes a large part of what it sells by itself.

It has a large manufacturing facility that handles diamond jewelry production and gold refining, along with its own network of artisans and vendors, rather than simply buying finished jewelry wholesale.

You need more cash.

You need more working capital.

No matter how great you are, these businesses just suck cash.

It's just how it works, especially in those first couple of years.

I think it's

fair enough.

Do you feel like you brought enough cash? Do you feel like you had enough working capital upon closing?

The one thing that I would change, not about the structure, but the timing.