Gerber Finance

Gerald Joseph
CEO, Gerber Finance
With more than two decades experience in commercial lending – successfully growing businesses in the U.S. and abroad – Joseph firmly believes that correctly identifying where a business will struggle financially, and doing so in a timely manner, is 90 percent of the solution. Joseph has experience on both sides of the financing desk – as both a lender and borrower – which fuels his realistic approach to problem solving. Among his triumphs, Joseph successfully steered a household name in music from a history of losses in the millions to a profit in less than a year. He took a trading and investment holding company that had revenue of more than $500 million but that had lost all its equity and was continuing to hemorrhage money and transformed it into a lean, successful international trading company valued at more than $20 million. Joseph currently manages a $50 million loan portfolio that helps small businesses achieve rapid growth and continued success.

Jennifer Palmer
Vice President of Business Development and Marketing, Gerber Finance
As an integral member of the new business team at Gerber Finance, Palmer meets regularly with growing companies, helping them identify and manage a wide range of financing problems and solutions. On a day-to-day basis, she works with entrepreneurs across apparel, home furnishings, agriculture and other industries, helping to increase revenues and implement strategies that will ensure a consistent growth pattern. Palmer also has her law degree and regularly advises clients on the intricacies of business law and legal situations they may face on the pathway to growth.

YOUR FINANCE QUESTIONS ANSWERED

Two years ago, I started a company supplying low cost bathroom fittings produced in China. We have been steadily extending our client list and increasing sales, but I am beginning to have problems with my supplier. Though I’m happy with the quality of their work, they are shipping haphazardly, which may damage my company’s reputation. I’ve looked into alternate suppliers but their costs are too high. Any advice?
Philadelphia, PA

Joseph: You could pay for the goods via letter of credit – which your lender should help you create – to protect yourself. Within the letter of credit, you can make payment subject to the supplier meeting your conditions (i.e. delivery terms, dates and quality certification). If these terms and conditions are not met, you can refuse to pay for the goods. In the long run, you’ll also want to have a back-up plan – a reliable alternative source of supply. Even if the cost is higher, it’s ultimately about protecting yourself. Giving up some gross margin translates into money – the dollars you lose can be considered the insurance premium for having the security of a second supplier.

Palmer: Also consider the cause of your supplier’s deterioration in performance. Perhaps your growth and increased demand on your supplier puts them under financial pressure. So in moving faster to keep up, they’re being less careful. Schedule some face time with your supplier to ask questions and express your concerns.

I run an outdoor leisure-related business that’s grown by leaps and bounds since we launched three years ago. However, we didn’t realize how seasonality would affect our cash flow and are now struggling through the lean periods (when we need to build up inventory in anticipation of the rush). How do we capitalize on our anticipated sales during the upcoming “high” season to help finance the “down” period?
Ridgefield, CT

Palmer: Leaps and bounds growth is terrific – but it does create a financing challenge. To keep your business growing steadily, you may consider leveraging your inventory by finding a lender that is comfortable financing the build up of your inventory for the busy period. Many will tell you this is difficult with a limited track record, but a specialized inventory lender could help you use your existing inventory as collateral to finance your lean periods.

Joseph: Jennifer is absolutely correct. Seasonality is an issue that entrepreneurs understand well but that banks and traditional lenders often see as too risky. Look for a lender that is comfortable financing the build up of your inventory based on your sales history and not based solely on the assets that your company carries in the lean season (which would not be enough).

I recently started a business selling vitamin-rich skin products. Given the current health craze and attention to all-natural and vitamin-rich products, the brand took off. I currently have more orders than I can handle but not enough money to finance all the production. I don’t want to take in a partner. What do I do?
Athens, GA

Joseph: Seek a loan against the assets of your company. Your business is probably too young to obtain financing from a bank, but there are many alternative forms of financing (i.e. lenders that will give you a loan based on your accounts receivable and inventory assets, as well as your equipment and real estate if you have any.) And when choosing a lender, be sure to ask the right questions before you commit.

Palmer: Gerald hit the facts, but let me add that you are right to be cautious about taking in a partner. The most expensive money is equity finance. And beyond the monetary expense, there is an emotional expense as well. Taking on a partner – even a “silent” partner - is an investment of a different kind and should not simply be a “way out” of a tricky financial situation. Trusted business advisors and colleagues can provide helpful feedback. And find a lender that will allow you to grow your business while maintaining your personal investment in your dream.

I'm looking for money to grow my cleaning business in Angola, Ind. I'm trying to support myself but am not making ends meet. It seems like any profit goes to payroll.

I have one employee and need to hire another person, yet I can't even pay my monthly living expenses. After three years in Angola, the business is growing daily. How does a small business survive basic startup costs? I'm not married and have cashed all my childhood savings bonds.

If you have any suggestions (besides moving to a big city or getting married), please let me know.
Karen Lenz
Tailor Maid LLC

Joseph: To be able to better guide you, I would need to know more about your business. However, as a first step, you must separate your business finances from your personal expenses to get a handle on why you need to borrow. Is it because your personal needs are greater than what your business can provide?

Once you've separated those, take a look at why you need money to grow:

1. When do you get paid for the cleaning services you provide? Are you giving credit, or do you get paid on completion?

2. I assume your employees are paid hourly and only get paid for work done. If so, do you have to pay them before you get paid by your customers?

By answering these questions, you can compare the timing of your incoming revenue to your outgoing expenditures and attempt to narrow that gap – thus alleviating the cash flow pressure.

Now, if you can get paid for a job immediately on completion and also only pay your employees after the job is done, why can't you hire more employees?

Next, the essence of your question: Where do you get financing to help you grow?

You should speak to your local banks. Some banks have a credit scoring loan program, and subject to their criteria, you might qualify. Another answer is microlending. Some have programs specifically geared to women in business. Take a look at this website and see if they can help: villagebanking.org/contact.

Palmer: I agree with Gerald. In your case, hiring a new employee shouldn't strain cash flow but rather increase it. You seem to have a common yet critical problem: Your cash outflow exceeds the inflow. I'm not sure I understand why, though. Is this because, as Gerald says, you are mixing your business inflow with your personal needs?

Based on what I assume to be your business model, your overhead costs would be low and the cash flow would be positive. Aside from payroll, taxes and transport, what are your overhead costs? And are you getting paid promptly?