Last week, Richard and I took the train up to Connecticut to visit a client we hadn’t seen in a while.
It had been three years since the couple came to us for a business plan to help raise the money they needed to open a high-end women’s apparel store right off the town’s most famous shopping street. They wanted us to see their store and update us on their progress.
The good news, they told us when we walked past the designer shoes and dresses and up a short flight of stairs to their office, was that, after last September’s financial meltdown that ripped like a tornado through New York’s financial community, their customers were spending money again. Apparently, the hedge fund manager husbands had once again given their wives the green light to shop. And unlike a dozen other neighboring stores along the main drag, our client’s store had managed to survive the storm and emerge smarter, stronger and more profitable.
The bad news, our clients told us, was that they were deeper in debt than they’d been when they opened their doors in 2006 and that sales were off roughly 40 percent from 2008, their best year to date. In the meantime, the company’s accounts payable were piling up and several of their vendors–the designers whose fashionable dresses they carry in their store–had stopped shipping for lack of payment. While the couple had been able to negotiate a lower interest rate on their SBA loan, and the landlord had let them defer some of their rent, they were now digging into their own pockets to keep the business afloat.
While I’d love to tell you that Richard and I waved our magic wands and made our clients’ problems go away, the truth is that surviving a recession–especially when you’ve got a retail store that requires a physical location, employees and inventory–is no easy trick. Because the company and its owners are already highly leveraged, it’s unlikely that their bank would lend them more money, we told them. They need an investor–or group of investors–willing to share the risk, help them retire or restructure the debt that’s on their books and give them working capital to grow their business, buy more inventory and keep their vendors at bay.
At first, our clients were mystified. But we’re struggling for survival, they told us. We can’t afford to grow right now. You can’t afford not to grow, we told them. You need equity, not debt, to shore up your balance sheet, and the only way you’re going to get it is to convince an investor that, once the economy turns around, your company has what it takes to get to the next level. Whether that means opening more stores in more locations, partnering with a major department store to open concept shops within its existing stores, or providing personal shopping services for high-net-worth customers, you need a plan that makes investors say “Wow!”
By the end of the meeting, our clients realized that they had to move forward, that there was no going back. I’ll keep you posted on our clients’ progress in the months ahead. In the meantime, hang in!
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