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Message
re: Positioning a business for growth...?
Posted on 12/9/11 at 11:59 am to cahoots
Posted on 12/9/11 at 11:59 am to cahoots
quote:
Get that line of credit paid down, and fast.
Why? As long as the return on the borrowed funds exceeds the interest rate, you're making money. It's going to be tough to grow without any debt.
The business has nearly used a million dollar line of credit because it is not collecting receivables.
They are also barely hanging on to vendors by paying what they can here and there to keep the vendors tolerant.
Don't overcorrect on the "debt is bad thing" tardness that rules here.
2
Posted on 12/9/11 at 12:12 pm to !Tiger
I'm gonna make one more comment on this.
I find this to be a cultural phenomenon in our country these days... frick up over here and band-aid it over there, rather than find the root of the problem and correct it.
So the company doesn't collect it's receivables and then draws down nearly completely a $1M line of credit to pay it's payables.
And somehow you bookworms got out of class today and say debt is ok.
That was said without reading (or better, comprehending) what the guy posted.
The reason they have that debt is a disaster in a company and it is not ok.
I find this to be a cultural phenomenon in our country these days... frick up over here and band-aid it over there, rather than find the root of the problem and correct it.
So the company doesn't collect it's receivables and then draws down nearly completely a $1M line of credit to pay it's payables.
And somehow you bookworms got out of class today and say debt is ok.
That was said without reading (or better, comprehending) what the guy posted.
The reason they have that debt is a disaster in a company and it is not ok.
This post was edited on 12/9/11 at 12:14 pm
Posted on 12/9/11 at 12:18 pm to GoHoGsGo06
quote:
I disagree on paying payables as soon as you can. Pay them on the last possible discount day. This leaves the most amount of cash in your bank, yet still will provide you the discount.
That's what the PhD's say!
Posted on 12/9/11 at 1:04 pm to !Tiger
quote:
The reason they have that debt is a disaster in a company and it is not ok.
Yep. And they want to grow it as fast and as big as possible.
Maybe they should focus on running it well first.
Posted on 12/9/11 at 1:09 pm to !Tiger
I've got not problem with paying down A/P. He just said they have been using debt to fund purchases and assets to expand, not because they're floating payables. They're floating payables because apparently the people running the operations were a bunch of housewives. I believe you need to go re-read his comments. There's no reason you can't improve operations (in this case collecting receivables and paying payables) and expand at the same time. There's no reason to pay down a line of credit and restrict your business' growth because your previous employees sucked at collecting.
This post was edited on 12/9/11 at 1:12 pm
Posted on 12/9/11 at 5:58 pm to !Tiger
You're right that the cash (in)flow problem needs to be solved before anything else, but suggesting that he use what little cash they have to pay down the debt as fast as possible is counter intuitive. That would exacerbate the issue and leave less cash to pay vendors, etc.
Also, the title of the thread is "positioning a business for growth." You aren't going to grow very quickly or at all without some debt. You just have to use it to support cap ex rather than as a crutch for not collecting receivables.
Also, the title of the thread is "positioning a business for growth." You aren't going to grow very quickly or at all without some debt. You just have to use it to support cap ex rather than as a crutch for not collecting receivables.
Posted on 12/9/11 at 6:01 pm to cahoots
Exactly, thank you.
Posted on 12/10/11 at 9:10 pm to cahoots
Debt for Capital Expenditures vs. debt from job costs because you didn't collect on the invoice... these are two extremely different things.
I know what the guy titled the thread and I believe he's truly thinking about how to grow the business. But he's looking too far head.
The business will not grow until he corrects the fundamental problem of not collecting his receivables.
And that is not at all what I'm saying. They are borrowing money to pay for things that should come out of operational cash.
I'm saying go collect the money and pay down a LOC that never should have been out of control in the first place.
THEN go get yourself some good debt and expand the business.
I know what the guy titled the thread and I believe he's truly thinking about how to grow the business. But he's looking too far head.
The business will not grow until he corrects the fundamental problem of not collecting his receivables.
quote:
but suggesting that he use what little cash they have to pay down the debt as fast as possible
And that is not at all what I'm saying. They are borrowing money to pay for things that should come out of operational cash.
I'm saying go collect the money and pay down a LOC that never should have been out of control in the first place.
THEN go get yourself some good debt and expand the business.
Posted on 12/10/11 at 10:51 pm to !Tiger
Another suggestion, factor your receivables. Insta-cash.
Posted on 3/18/12 at 10:11 am to GoHoGsGo06
Aside from factoring receivables...Do you guys have any debt restructuring ideas...
Here is the deal, my company's current ratio is below 1..it is .94 (negative working capital). I'm thinking of terming out part of the credit line that was used for asset purchases and refinancing current Note Payables into 1 longer term payable. I know I'll end up paying more in interest in the long run, but cash flow is so tight, something has to be done...
Any one else have any ideas on increasing my net working capital or any different ideas on debt restructuring?
Here is the deal, my company's current ratio is below 1..it is .94 (negative working capital). I'm thinking of terming out part of the credit line that was used for asset purchases and refinancing current Note Payables into 1 longer term payable. I know I'll end up paying more in interest in the long run, but cash flow is so tight, something has to be done...
Any one else have any ideas on increasing my net working capital or any different ideas on debt restructuring?
This post was edited on 3/18/12 at 10:12 am
Posted on 3/18/12 at 12:49 pm to TRUSAINT21
Assuming that increasing equity or decreasing distributions isn't an option? That's the only other thing there is to do, cash only comes from 3 places.
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