Remember that inventory cash flow post I always link to? You know, the one where I basically concluded:
Is there any solution to this problem? Yes, there is, and we personally know several e-commerce companies that no longer have this problem. Their solution: they have a shit load of cash.
This year we’ve seen good progress towards accumulating that “shit load” of cash. As we keep going further and further above our estimated monthly break-even point, the fixed expenses become more and more negligible and we’re able to profit more and more. Still, the more capital we have access to at any given point in time, the better. You never know when an opportunity will come along where you can put that money to good use. It might be a new line of products, an enticing acquisition, or we might just want to accelerate growth with more marketing or more employees.
Mike took over accounting at the beginning of the year and has made a number of huge advancements.
The largest one, as you can tell by the title of this post, was landing us a large line of credit with our local bank, Citizens Bank. Previously we had a small line with them, and we used that in conjunction with our cash and cards like the (awesome) AMEX Plum to buy inventory. As we’ve become more and more profitable, the need for a larger line has become less and less. Of course, that’s when it became easiest for us to get it. Mike did all of the leg work (it was a lot of back and forth). Ultimately we were able to more than double the size of our existing line. Do we need it? No. Does it change much? No. Is it nice to have it? Hell yes.
This was probably the 10th line of credit we’ve applied for. Here’s a summary of what I’ve learned:
- Banks don’t care all that much about your revenue/profitability. They care much more about assets. If we were unprofitable and smaller but had large valuable houses, or if we owned our warehouse, we would have had a much easier time. Also, inventory doesn’t count as an asset.
- Banks always make you personally back everything. Such is the case with most stuff we’ve done.
- Banks always want the SBA to back their line so that they have even less risk. Everything involving the SBA takes forever and is a total pain in the ass. Thankfully this line was an extension of an existing one so we didn’t need to jump through all of the hoops again.
In addition Mike has made some other huge accounting advancements this year. Learning something new is a big task in and of itself, especially with how busy we all are. Taking what we had and making it much better in such a short time has been really impressive. The simplest was switching to printed checks and double-window envelopes (like these) to eliminate hand-writing of checks, something we had previously been doing. One of those things that saves a few minutes here and there, but compounded over the course of months/years is a drastic improvement, not to mention the elimination of writing errors.
Maybe the most interesting accounting advancement has been his discovery of a little-known feature to automate direct deposits without using a payroll service. Back in ~2007 we used a payroll service for a while and it was a disaster – way overpriced and they messed up a tax filing for us. After that we went to just using regular checks. I had been pushing for a while to get us back to using some sort of payroll service again. It’s a pain for everyone to have to regularly go to the bank. It’s not something that future employees would look at as a perk.
Mike brought it up to our accountant and he mentioned that he had a client using automated direct transfers from business to personal accounts. That’s the tricky part – business to personal. Make that too easy and fraud would be rampant. Mike called our bank over and over again to finally figure out how to set this up. It was a bit of a pain. There are different rules for people who bank with Citizens and for those who use an external bank (there’s a small fee for external banks too). But now it’s all set and we all get our checks deposited automatically…and he doesn’t have to cut a bunch of checks every two weeks. Supposedly most major banks have this feature but most people I’ve talked to had never heard of it like us. It’s not a full-fledged payroll service, but it’s a great option for small businesses like us that don’t need all of that advanced functionality and don’t mind filing our own payroll taxes.