PET Food Processing - March 2022 - 11

FUNDING A STARTUP
expensive option that doesn't require positive cash flow. "
Invoice financing or factoring is a way to monetize a
company's AR instead of waiting 30 to 90 days for customer
payment. A business can factor AR assets to meet
present and immediate cash needs and the buyer makes
a profit upon the settlement of the loan. Factoring is
gaining traction with banks often having their own factoring
department, because it's easier to obtain funding
compared to ABL financing.
" Cash flow is king, " Huddleston continued. " I cannot
stress enough how important cash flow forecasting
is to any businesses, which requires great Accounts
Receivable collection practices. "
There are also special extra lending programs for firms
that are exporting. Companies that need to expand or to
change their manufacturing process can tap loans guaranteed
by the SBA or US EXIM Bank that would allow for
capital equipment, supplies, inventory and other expenses
potentially necessary to expand sales into foreign markets,
according to Laurie Wolff, distinguished fellow at
NASBITE International on export assistance funding and
instructor at Southern Illinois University at Edwardsville.
When owners don't have enough equity, " gap lenders "
can help fill the difference. The funding provides
an amount of money needed to fund the ongoing operations
or future development of a project or a business
and typically takes a secondary position behind the
bank on the collateral, Anderson shared. This gap also
might be addressed through venture capital and/or additional
investors.
If a business doesn't qualify for a traditional loan because
of a brief business history and/or low credit scores,
there is the option of a merchant cash advance (MCA).
Although the MCA is easy to obtain, the advance contains
high costs and the highest risk of default.
Planning ahead
Obtaining the right funding at the right time can become
more manageable with advance planning. It can
also make less expensive funding options less difficult to
obtain. Conversely, a lack of planning could force a borrower
to pursue more expensive options such as nonbank-owned
financing.
" If you're thinking of expanding, think up front about
whether you can target any part of your product to an
export market, " Wolff recommended. " Other government
agencies such as the Commerce Department and
its Gold Key program can help match you with foreign
buyers if you don't currently have an export plan. "
To best understand the growth potential of each funding
option, it's important to cultivate a great lender relationship.
Huddleston recommends taking the time to
find a lender with a consulting approach. This is somePet
food industry veteran and NQV8 Chief Executive Officer John
Kuenzi said there has never been a better time for startups in the
industry but funding must be part of the business plan for a new
company to be successful.
" The startup entrepreneur has emerged as the principal way of
creating wealth and opportunity in America, " Kuenzi said. " Never
has there been a more startup friendly environment which can be
capitalized on if you are willing and able to develop a unique capability
and work your tail off to accomplish it. "
Funding requires time and a truly dedicated effort on the part of
the entrepreneur. Exchanging equity in a business for funding is a
common approach for startups and can secure more for a young
business than just money.
" Smart founders know that equity is the most expensive thing that
can be exchanged for money or services, " Kuenzi said. " Trading
equity for funding is a big decision...Smart money brings much more
than just financial resources or general business understanding.
[Smart money sources] are subject matter experts and can back
that up with specific talents and services that further the business
objectives. They also have great connections and a network that can
be utilized by the startup.
" Never partner with someone or a company you don't trust who is
not aware of the unique challenges you are facing, " Kuenzi shared.
" This is simply not worth it. The interaction with your advisors and
investors should be calming, supportive and thought provoking. "
A funding strategy is as important as a go to market strategy at
certain times.
" There are really two kinds of [spending] mistakes entrepreneurs
often make, and both have challenges, " Kuenzi explained. " Those
which are super conservative in the spend and those which burn
through funding very quickly and are in a panic for the next raise
[funding round]. There must be a balance of creating momentum
(spending money) and prioritization of that spend.
" Money equals time and your burn rate and runway are essential
to provide the time necessary to pivot and adjust your model to the
realities and learnings currently being experienced, " Kuenzi said.
From Kuenzi's perspective, pet nutrition startups have never been
more prevalent or potentially viable.
" Today, pet nutrition startups are benefiting greatly by finding a
highly supportive and receptive environment where there is money
to fund them if they tell the right story and can back that up with the
right approach, " Kuenzi said. " For founders there is no better feeling
than successfully navigating the challenges of a startup and having
a great company to show for it. "
- Jennifer Semple
one who will provide insight into the various loan types
available from that lender as well as from other lenders.
If that lender is not a good fit for the situation, that individual
should be able to direct the business owner to a
different lender. Set aside enough time to put financing
together and to gather the necessary information.
" It's important to hold the cards when approaching an
equity sell, " Barrett said. " Just because a bank will give
you the money, doesn't necessarily mean your business
is ready for that. The key is understanding your situation
better than any bank or financial institution. "
PFP
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PET Food Processing - March 2022

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