Rocket Retail Case Study – Positioning a Small Business for Sale
In June 2009, Billy Teagle, founder of Rocket Retail LLC, happily signed a contract to sell his retail merchandising company for a significant profit. Just eight months earlier, however, Teagle was in a position common among small businesses owners – unable to get bank loans and in desperate need of a cash boost so he could grow and position his firm for buyout. Even though Rocket Retail met all the typical standards for financial backing – profitability, steady growth, a solid business plan – Teagle was denied credit.
Without access to cash, Teagle’s next option was to accept outside financing from angel investors or venture capitalists. However, being a steadfast entrepreneur, Teagle was hesitant to relinquish control of his business to outside parties.
“Anytime you owe people money, they want to know what you’re doing with it,” he says. “Plus, I wasn’t big enough for VCs.” Without refuge from traditional avenues, Teagle began looking for alternative sources of funding. Then he found FTRANS.
Using A/R for What It’s Worth
Teagle worked with FTRANS, a credit and accounts receivable (A/R) management firm, to turn Rocket Retail’s A/R into collateral that his local bank could use to establish an open line of credit. Because the financial institution had a transparent view into the company’s A/R and knew who Teagle’s customers were, it could gauge the likelihood of which customers would pay on time, which made Rocket Retail a safer candidate for credit. This kind of financing – alternative finance – benefits banks and small businesses concurrently. Businesses get the access to cash that they need and banks can begin lending again, helping them return to profitability.
Within days of working with FTRANS, Teagle began uploading invoices from customers to FTRANS’ online system and FTRANS coordinated payment on those receivables from the bank. Teagle typically saw a return on invoices within 3-4 business days. Rocket Retail’s customers experienced very little change in the payment process – they kept the payment terms they had before (net 30 days) but instead of paying Rocket Retail directly, checks were sent to a lockbox for FTRANS.
The FTRANS cycle is similar to how consumer-facing businesses operate using credit cards – i.e. a business accepts a credit card as payment; for a small processing fee, the business gets return for the sale in days; and the customer gets 30 days to pay for the sale. Outsourcing accounts receivable is the closest financial model the business-to-business (B2B) market has to a credit card.
“By using FTRANS, I was able to work with multiple vendors on one credit line,” Teagle said. “I never maxed out and was able to establish positive cash flow. What FTRANS offered was perfect – we had a good portfolio of blue-chip vendors they paid invoices on time but working with FTRANS allowed me to get the money faster.”
A Welcomed Convergence
With the cash-on-hand it needed to keep growing at a steady pace, Rocket Retail expanded quickly and Teagle eagerly entered into an M&A phase. Teagle shopped around for the right opportunity and after a few months, the company was bought by Convergence Marketing, a larger retail merchandising firm. Teagle stayed on as an executive vice president.
Without a strategy to increase revenue, Rocket Retail might not have been attractive to outside buyers for a much longer period of time. Businesses across several industries face this particular challenge every day, especially in today’s economic environment. In a downturn, cash is king and without access to capital, businesses struggle to stay afloat, let alone position themselves for growth.
Using FTRANS also left Teagle with the freedom he desired to run the business on his own terms.
Medical Software Company:
Transcriptions Solutions is a medical technology company that provides transcription software to hospitals and private practices, converting dictated doctors’ notes into clinical documents. When Trascript Solutions was first founded, one barrier to the company’s success was the inability to generate cash-on-hand because of slow paying customers. Like many B2B companies, Transcription Solutions operates on a trade credit system that invoices customersmonthly for payment – a process that limitscash ow, hinders business planning and increases liabilities.
Without a consistent supply of cash, Transcription Solutions found it diffcult to manage operating costs, invest in the businesses’ growth and maximize its research opportunities. To remedy this situation, though, Transcription Solutions turned to FTRANS to manage its credit and accounts receivable processes. After using a different receivables discounter company for 2 years, Transcription Solutions eventually returned to FTRANS. Executives at the company pointed to poor reporting, time consuming processes and lack of credit oversight as the main rationale for switching back.
FTRANS helped Transcription Solutions to:
- Quickly access the necessary capital conducive to the company’s growth.
- By being able to do so, the company now has realistic and affordable plans to expand into new regions and to increase its marketing spend among its key demographic constituents.
- More effectively asses market opportunities and make the necessary quarterly and yearly business plans
based on tangible projections-- TS executive refer to this as the "financial crystal ball".
- Make important planning decisions and forecast projections based on historical data of its own finances and based on its customers’ credit standing.
