Question: What strategy have you followed in using your business’s resources or capital to grow, or what advice do you have for companies with capital to do so?
Dennis Cornelius
Managing Partner
CKS Advisors, LLC
Sector: Finance
Business owners have many new choices as they consider the best alternative to finance growth. With restrictive changes in bank over-regulation, many creative alternatives have filled the void.
One that we are seeing more often is the royalty method of raising capital for fast-growing companies. Royalty-based growth capital provides capital in exchange for a fixed percentage of a company’s future revenue (a “royalty”). The company pays the royalty monthly until its total payments reach a cap, expressed as a multiple of the investment amount.
Benefits of Royalty-Based Growth Capital include no fixed or minimum payment requirements, as monthly payments flex with the growth (or contraction) of the business; it generally does not require a personal guarantee; and it allows a company to secure significantly larger amounts of growth capital than would typically be available from other debt sources. It preserves ownership; because royalty-based growth capital is a form of debt, there is no significant equity dilution, nor is there a time-consuming valuation process. And success is not dependent on the sale of the business or other liquidity event.
Dennis Cornelius is a managing partner at CKS Advisors, LLC, which offers businesses a comprehensive business analysis and audit, strategic financial investments, organizational development and restructuring, and more. In his 40 years’ experience in the financial services industry, nationally and internationally, he has advised clients on both sell-side and buy-side engagements in various industries.
Joel Gottesman
President
Liquid Capital of Arizona
Sector: Finance
In providing alternative financing for businesses, we work with startups to middle-market companies. A recurring challenge we see is how a business can fund new growth opportunities. If new financing is not an option, the question often becomes how a business can make the best use of its existing capital and resources.
Here are a few strategies our experience has shown to be effective: Work with suppliers to get longer payment terms; this is an often overlooked funding source, and suppliers may reward good customers with better payment terms. Offer your customers a discount for early payment on outstanding invoices. Rather than fund the startup costs of a new product or service, share resources, expertise and profits with a joint venture partner that can shoulder some of the ramp-up expenses. Leverage existing assets, including licensing of intellectual property that may not be mission critical; this can generate a revenue stream to fund other projects. Lease new equipment to preserve cash, and refinance owned equipment that may have been purchased with cash.
Joel Gottesman owns Liquid Capital of Arizona, which specializes in alternative finance, including asset-based lending, factoring, export finance, inventory finance and purchase order finance. In his career, Gottesman has been a successful business attorney, specializing in M&A and banking law; a bank executive; and a small-business owner. He authored “Field Guide to Small Business Finance” for the Arizona Small Business Association, which was published in the September 2015 issue of In Business Magazine.
Liesl Harder Kielp
Founder and CEO
AguaSAC LLC
Sector: Manufacturing
AguaSAC LLC self-funded its launch, a strategy I believe helps the business owner understand all costs associated with operating a business and is incentive to keep those costs contained. In the beginning, AguaSAC outsourced all manufacturing operations. It was a lot more expensive, but it allowed us to see where we might experience pitfalls. Going into our own production facility could have been an expensive disaster had we not outsourced first.
A grant from the Arizona Commerce Authority gave us capital to install our own production facility. This required very little work on our part as we were connected to the group awarding the funds, but I believe a business can lose ground spending time writing grant requests or making pitches instead of pursuing sales to organically grow its business.
Now, the production facility has reduced our product costs exponentially and streamlined the overall operation. We have capital assets that have allowed us to apply for an SBA loan and, through new retail sales channels, we’ll be able to purchase more productive equipment to meet and exceed these new sales opportunities.
Liesl Harder Kielp founded AguaSAC LLC to provide competitive employment opportunities for adults with developmental disabilities through the packaging and distribution of quality artesian spring water in a unique and Bisphenol A-free pouch. In addition to her innovative design that gives the pouch structure and stability, Kielp also created a filling line that enables AguaSAC to achieve the similar speeds as bottling lines.
