Working Capital and Your Small Business

Catherine Juon of Pure Visibility sat with MichiganInnovators.org to discuss her journey with a new business and some of the ways she financed her business while bootstrapping.  I was really drawn to this particular set of interviews because she is one of the local entrepreneurs I followed on Twitter and because I am very interested in the different ways a business is financed.

One thing that you should know is that I am pretty much dead set against all forms of debt financing.  I am more interested in bootstrapping with personal savings than with a debt instrument like a personal credit card.  This mostly has to do with my own poor behavior using credit cards and the fact that being out of debt is just so freeing.  There really was no underlying education on how to properly use a debt instrument for business financing.

I’m a little smarter after watching these interviews.  Pure Visibility helps with marketing website and is a pure serviced based business.  Catherine used her personal credit card as the needed working capital to help finance her ongoing daily operations.  Working capital was a new term for me:  this is capital (cash) you will need to finance your business while you wait for recievables to post.

Working capital, regardless of how it is financed, pays your employees and the electric company.  When you’re in bootstrapping mode, working capital is what you’re drawing on to keep the business going.  For many people that means financing with a debt instrument.

Her needs for working capital grew from a personal credit card to a corporate credit card and now Catherine is exploring a Line Of Credit as a stable and more appropriate source for working capital. Her experience has taught her a lot about how credit can best be found.   She began to pre-qualify the bank sources by explaining exactly what Pure Visibility was and making sure that the relationship was going to be the right fit.  Specifically she was wondering if the bank even “got it”.   She also began to look at her business in a component based viewpoint.  This leads her to ask what parts of her business are consulting, and which parts of her business become trade secrets.  Knowing the answer to these questions let her explain to prospective bankers in terms they understood.

Catherine was also very clear on her funding sources.  She acknowledges that venture capitalist funding is quite the cool thing to do but is seeking bank sources of credit to finance her business.   V.C. funding requires you to ask yourself what parts of the business will you give up to grow.  This is an question that I knew existed but had not really admitted to myself.

These were very educational videos for me.  While I am not convinced about debt financing, I did learn a couple things on the operational aspects of running an enterprise.  I’m curious about the application to a business plan.  Should working capital be laid out in the business plan as part of the operations?   I’m also wondering if you have to burn through all the cash or if some can be saved to self-fund growth opportunities in the future?  A trip to Entreleadership might answer that question for me.

Shaun Farrugia

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