We don’t have enough cash to support production. Help!

Hi Aunty B,

Our company is in a situation where we have a great deal of potential sales with some very well-known medical device manufacturers and College Universities.

Some of our projects and products can most definitely bring in high profits.

However, we are in a spot where we have so much work and quote requests, but we don’t have enough money to ramp up the production facility to meet the demands. Resources are low and we are stretching each employee as tight as can be imagined (including myself and the president).

We have tried to get a loan in the past and have failed due to equity. We do receive grants for some of our research projects, but it is simply not enough. I am confident that this company can grow to be very successful, but I just don’t know which path to take to get there. Any advice would be greatly appreciated.

Best regards,
Robert

Dear Robert,

You have hit a classic entrepreneurial dilemma. You have to invest in growth infrastructure. The only way to do this is by making sure you have a surplus of cash from current sales, you get or increase debt funding or you take in an equity partner.

It sounds like you can rule debt out. And it doesn’t sound like you can make use of options such as getting clients paying upfront or give them a small discount if they pay ahead of receiving the order. Nor the other major way that entrepreneurs fund growth, which is to get big margins on sales and use that to fuel the business.

So what you are going to have to do is sell some equity to an investor. What you need to do is talk to your accountant about finding an investor. She or he can either help or put you in contact with someone who specialises in helping companies raise capital in your industry.

This is time consuming and distracting but the trick is to raise a large sum so you don’t run out in a few years time. Of course the fact you are strapped for cash now means that you will give away too much of the “farm” in exchange for equity but it can’t be helped.

Be aware that there is no easy answer to this serious problem. And remember. Success kills just as much as failure.

Be smart,
Your Aunty B

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