Product Demand Can Ease Cash Crunch
Picture this: You start a business confident that, over time, you will see it grow. You’re patient, you don’t expect to make a quick killing and you think you can finance your growth out of cash flow as demand for your product grows. Then demand suddenly skyrockets, and you find yourself short of working capital to meet it.
What do you do?
Cash flow trouble kills a lot of businesses, particularly the kind that comes from a sudden increase in demand. Your customers expect to pay for your product after you deliver it--maybe months after you deliver it--but you need upfront cash to buy raw materials and pay for the labor that go into making it. To make things worse, since you’re a start-up, you don’t qualify for the bank financing that might solve the problem.
But outside financing isn’t your only solution. Sometimes you can turn the demand for your product to your advantage--and Ken Thurm can tell you how.
Thurm and his wife, Tina, own Kendon Industries Inc., in Anaheim, makers of a number of aftermarket items for cruiser motorcycles, including a unique fold-up trailer. Founded in 1991, Kendon Industries employs 18 people, and the Thurms capitalize on the uniqueness of the fold-up trailer not just to avoid cash flow trouble but actually to create the working capital they need to meet demand.
How? They collect on their invoices before they ship their goods, effectively making their customers a source of working capital--their practice from the beginning.
“A friend of mine who lived in a townhouse had a neighbor who was always getting tickets for his trailer because he had no room to store it inside,” Ken Thurm said, recalling the genesis of the Kendon trailer.
“I designed a folding trailer that took up two feet of floor space. When he came to pick it up, he saw it folded up against the wall and got so excited that I started thinking that there would be a demand for trailers like that one.”
There was. Thurm made three prototypes, including one big enough to carry a cruiser motorcycle like a Harley-Davidson or Honda Valkerie, and trucked them around Southern California from one motorcycle dealer to the next.
The dealers liked what they saw, Thurm said. Indeed, they got just as excited as the friend in the townhouse--and that, as you might expect, gave Thurm his chance. He told the dealers that it was his policy to ship his goods only on payment of his invoice.
“We told them we were a small business and we couldn’t give them terms,” Thurm said. “We got some resistance, but the trailers were unique, and the dealers knew that they could sell them and they went ahead and paid for them.
“We still get some resistance occasionally, but not much. And we still fax invoices to our dealers and ship when we receive payment.”
Not every business can get its customers to pay for its products upfront, of course. But every business creates opportunity--so the job becomes to see and take advantage of it.
In Thurm’s case, the opportunity puts him in an enviable position nowadays. He may reorganize and expand his operations and will need some working capital to bring it off--more than Kendon Industries itself generates.
In plain English, Thurm may need some outside money, and he seems well positioned to get it.
“Our foundation is there, so we can branch out and do new things,” he said. “In the early days, bankers would not have given us the time of day, but now they come calling, and when I tell them I may need several million dollars, they say, ‘No problem.’
“In the beginning, that never would have happened. I’m very thankful--and I don’t take any of it for granted.”
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Juan Hovey can be reached at (805) 492-7909 or at jhovey@gte.net.
