Tuesday, November 8, 2011

A consultant grows, and grows deeper into debt

Adrianna Gardella of the New York Times writes a terrific series entitled "She Owns It," featuring stories of women entrepreneurs. In a two-part post, she profiles consultant Carissa Reininger, whose struggles with managing growth and cash flow should be required reading for anyone wanting to scale up a people-based business like consulting. Here are a few nuggets from part 1, where Reininger describes how the situation spun out of control:

“I had no start-up capital, no experience, and no real idea what I was doing.” Still, Ms. Reiniger said the company grew quickly and sales rose from $29,000 in 2005 to $1.1 million in 2007 — when cash flow became an issue. “It was literally, money in, money out,” she said. Silver Lining never had a line of credit. Instead, Ms. Reiniger said, “I had a credit card with a $17,000 limit.” She said Silver Lining’s small-business clients had their own cash flow issues, which didn’t help matters.

By late 2006, Ms. Reiniger said, Silver Lining’s financial woes prompted her to start “calling people and making ridiculous deals.” For example, she would request a loan of, say, $50,000 and promise to pay it back in 60 days — at a 20 percent interest rate....

She said she entered a dangerous cycle — borrowing a sum from one person and paying it back, with interest, with a loan from someone else.

Ms. Reiniger said that from 2006 until 2008 she completely ignored the reality of her situation. “Admitting that I didn’t have a grasp on our finances and that I was going into debt every month was not going to support my image,” she said, adding that the company had a “rock star” reputation. But while Silver Lining’s annual revenues were $1 million, the company was spending more than that.

It got to the point where Ms. Reiniger said she couldn’t bear to look at the company’s QuickBooks records.

And here's a bit of Part 2, which covers Silver Lining's recovery:

After two years of trying to ignore her predicament, Ms. Reiniger was forced to acknowledge it. One wake-up call came, she said, from the husband of a creditor who went to Silver Lining’s offices in Edmonton, Canada, and threatened her and her employees. Some shell-shocked employees began to quit, and Ms. Reiniger was forced to lay off others. She was soon down to two employees from a high of 25. In a misguided attempt to grow her way out of debt, Ms. Reiniger had expanded from Silver Lining’s original Toronto office, adding outposts in Vancouver and Edmonton, Canada, and Las Vegas. In 2008, she decided to close all but the Toronto office.

Silver Lining had made its living coaching other small businesses on how to set and reach financial goals. Now, Ms. Reiniger’s own business was struggling to manage its growth. The irony contributed to her reluctance to face her financial problems head-on. She wasn’t sure what to do: “I needed either slower growth or more money,” she said.

Part 2 also includes a great discussion of pivoting a business model and how to regain the trust of creditors.

UPDATE: Here's Part 3 of the story.

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