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As an early-stage start-up founder, you are dealing with many different business issues simultaneously every day and working capital might not be high on your priority list. However, working capital is an important key to your company’s success.

Working capital is to your company as wind is to a sailing boat. You might drift along without it, trying your utmost best to row hard to avoid the rocks. However, to make good headway, you really need wind to provide that boost.

So, what is working capital in the context of finance and accounting? Working capital is basically the funds that you need to run your day-to-day operations. This affects many aspects of your business, from paying your suppliers to keeping the lights on. This sounds simple, but this is also one of the main reasons why a lot of start-ups fail.

Think of this as a cycle:

To extract as much efficiency from the way you manage your cash, there are a few important ingredients that you will need:

Collect cash upfront from sales (Receivable cycle): One way to do this could be to consider a small discount for customers who are willing to pay upfront for your product.
Negotiate for favourable credit terms with suppliers (Payable cycle): Look to grow the relationships with your suppliers and hopefully they will be more flexible when it comes to prices and payment terms.
Keep your inventory to as low as possible (Inventory cycle): You don’t want cash tied up in products that no one is buying!

The key to this is that you want to hold onto your cash longer and try to get paid quicker. This might sound easy on paper but executing this well in reality is complex. For start-ups that are dealing with large enterprises, conglomerates, and government entities, this gets even more complex as you are now dealing with longer payment terms.

This is an area where Genesis can come in to help to bridge this cashflow gap. Venture debt, when structured properly, can unlock capital earlier for your business to generate and fund new sales or investments, while minimising shareholder’s dilution. You can read more about venture debt here and the different types of loan structures here.

Managing your company’s working capital and cash flow in an efficient and effective manner is crucial for success, especially in the world of start-ups. Paying attention to these cash movements on your balance sheet will help you be a better founder and bring you closer to your goals. Let us work closely with you to understand your funding requirements.

If you have any questions, please get in touch with me.

I did not want to write another article about “5 steps on how to scale your business” nor “the 10 things you must do to go from 100 – 1,000”. There are many good articles already published.

I would like to share a story of a local Japanese ramen shop I chanced upon. Its USP is to bring quality ramen to the average diner at affordable prices. That’s a big sell, given that the average cost of a bowl of Japanese ramen is three to five times that of a bowl of local wanton noodles. Intrigued but extremely sceptical, I decided to give it a try.

An entry-level bowl of ramen at this establishment costs $6.90 and comes with ramen, two slices of meat, garnishings, and a very hearty broth. It was tasty and wallet-friendly. I was sold.

I went back a second time last weekend. This time, while I ate, I Googled the history of this shop and came across an interview with the two founders. Prior to starting their ramen shop, they had no F&B background. But to my amazement, they were able to scale their business to seven outlets since starting in 2015. How did they do that in a hyper-competitive and cut throat F&B sector? I was sure that they must have a special formula for success.

And this is what I found out:

The founders wanted to make an honest living doing something they felt passionate about: For them, this meant being committed to selling “affordable ramen for the masses”.
They were obsessed with creating a product that customers love. Their aspiration was to bring a bit of happiness to each customer’s day with their ramen.
They disrupted the status quo by always finding a better, cheaper, faster way of doing things. They designed processes to cut costs in areas so that staff are not bogged down by non-core activities. This allowed them to keep their team lean.
They budgeted for the inevitable rainy day and did not give up when things didn’t go according to plan. When they started their first stall, it was at “a low-cost location” so that the losses would be manageable even if business was slow. Business was brisk in the first few months, but they lost all their profits when the school holidays came. Instead of giving up, they relocated somewhere else with higher traffic.
Through monthly profit-sharing, improved staff welfare, and positive working environment, they have a employee turnover rate that is below industry average.

That made me ponder, what does this mean for tech entrepreneurs looking to scale their business? Here are my conclusions:

Be obsessed with creating the best product that serves the needs of your customers – If you create a great, value-for-money product and take care of your customers, revenue growth should take care of itself.
Always be dissatisfied with the status quo. Find better, faster, cheaper ways of doing things. Improve unit economics and cost discipline. Ultimately, all these activities will be beneficial for the bottom line.
Never give up when things don’t go according to plan. Don’t forget why you started in the first place. Be nimble and be ready to tweak strategy if needed. Anything worth doing is worth doing right.
Take care of your team. Your team is your most valuable asset. When you take care of them, you create the fighting spirit and daring initiative that powers your team to go through the good and bad times with you.

I had wanted to add – be on good terms with your existing and potential investors. But that would be too self-serving!

It appears, if you get the above right, the scaling up should take care of itself. Oh, looks like I inadvertently shared some “how-tos” about scaling your business.

It’s been an interesting number of weeks going into a slow down circuit breaker mode. As the traffic ground to a near halt, I have been observing how the change in work and lifestyle impacts not just me and my family but also the Singaporean island state of 5+ million people and the consumer behavior. From the way we buy our food and grocery, to staying in touch with family and friends and taking time to become more environmentally conscious. Consumers are gravitating towards new behaviours that are shaping the new normal way of life.

How digital technology is helping us in the New Norm

In the workplace and school, digital technology has undoubtedly helped many to continue with work and learning. My 11 year old gets up at 7, takes her breakfast, scans her temperature and does her PE workout before going into a Zoom class. Her art classes are now carried out over video conferencing. Amazing.

Traditionally, Singapore has thrived on offline businesses like hawker centres and wet markets where the locals go to get their fill of world-famous delights and also buy fresh produce. It’s been a way of life for many decades but these businesses have suffered a massive decline as people avoid venturing outdoors. The initial options for hawkers were food delivery platforms but the commission fees quickly make it untenable just to break even. A quick thinking young hawker came up with an idea to leverage the Facebook Community and established Hawkers United that would help market, take orders and also give unsavvy hawkers delivery options to get their food to hungry consumers. The digitalization of hawker business now meant that hungry Singaporeans can now satisfy their craving for chicken rice, prata and fried oyster. Similarly, Pasar United is an extension that now helps grocery and wet market vendors to digitize their offering. We started seeing produce like seafood, fruits and vegetables online too. The news headline shouts out: “From wet markets to web markets”.

Environmentally conscious consumer behavior

The lure of Singapore’s hawker centre is beyond just good food, but also that recognizable grey haired chef behind the wok. When I mask up and head out to buy food from my neighborhood hawkers, I noticed more people adopt environmentally friendly use of bringing their own container to reduce disposable packaging. With the surge in food ordering, there was a momentary shortage of disposable food containers. The BYO concept is definitely a great move for the environment and more importantly, the food tastes much better in a glass container.

However, cash transactions are still the preferred mode of payment for these offline businesses. Singapore has undergone an infrastructure upgrade to equip these businesses with the means to take cashless payment via QR code. Beyond making it more accessible and affordable for digital payment, there needs to be a significant cultural shift for consumers and business owners to adopt cashless means of payment. Our physical wallet needs to be replaced by our digital wallet, and in this current pandemic, not handling cash could also mean reduced infection risk.

Digital to non-digital

Not every part of our lives needs digital and what I am hoping to see revived is drive-in cinemas that were popular in the 70s and 80s. With movie theatres shut, perhaps we can huddle safely inside the comfort of our own enclosed space out under the moonlight to enjoy a movie screening. Nonetheless, I see our new normal way of life changing bit by bit and reshaped to accommodate what the world needs to evolve into going forward.

This is indeed a timely validation of venture debt and the market opportunities that founders and VCs are aligned to. The study is conducted in the US led by Kruze Consulting, a leading CFO consulting company for startups. Respondents represent over $25B in venture debt or about 85% of the venture debt dollars invested in the last 3 years. The complete survey along with detailed analysis can be found here.

Extracting an important paragraph from the article to share:

“Most startup entrepreneurs are not sure about the use of venture debt and the best time to take on venture debt is when you actually don’t need it. Debt providers view the debt as less risky when companies have sufficient cash levels when raising the debt.” Often times companies wait until they are very tight on liquidity and the debt analysis becomes harder. It is easier to raise – and draw down an existing line – when a company is doing well (or has a lot of cash on the balance sheet). Lenders are not in the business of helping failing startups extend their runway, so trying to raise this kind of capital when the company does not have a lot of runway is a mistake. And since most agreements have covenants about the startup is allowed to draw down/access capital from the lender, an entrepreneur will find it harder to get capital from their lender if they wait until the company is close to running out of cash.

This is very true and we emphasize that a lot to the entrepreneurs we talk to. Start a conversation early, and we can help you along the way – whether you need venture debt today, or in the near future.

Working Capital and Why It Matters

Food for Thought: Scaling Your Business

Shifts in Consumer Behaviour Shapes the New Norm

How digital technology is helping us in the New Norm

Environmentally conscious consumer behavior

Repost: Venture Debt Market Reaches All-Time High According to Largest Study Ever