BRAND SECRETS AND STRATEGIES

PODCAST #206

Hello and thank you for joining us today. This is the Brand Secrets and Strategies Podcast #206

Welcome to the Brand Secrets and Strategies podcast where the focus is on empowering brands and raising the bar.

I’m your host Dan Lohman. This weekly show is dedicated to getting your brand on the shelf and keeping it there.

Get ready to learn actionable insights and strategic solutions to grow your brand and save you valuable time and money.

LETS ROLL UP OUR SLEEVES AND GET STARTED!

Dan: Thank you for being here today. I appreciate that this has been a lot of fun putting together these webinars. And today we've got something that's really important to share with you, helping you develop the strategies or, or think about different ways to help keep your business afloat and help you take advantage of incremental opportunities. So with that said, thinking beyond equity and alternative funding solutions, that will help you weather the storm. And Jessica's the perfect person to help with this conversation. But before we get started, I'd like to thank the people that are helping to support this ECRN range me, hopefully, it's a magazine, social nature, C-suite network CC C-suite radio Bricktown group, promo mass, Phil Looper, the supermarket guru, big orange productions, some sales consulting, food business success, a base camp plant-based solutions, four points, green capital circle partners and forest brands.

Dan: And again, thank you so much for them being here. Do me a favor and make sure you reach out to them and support them and let them know that you appreciate this. I couldn't do it without them. The way they're supporting me is just helping me make this available to you by promoting it and sharing it with their audiences. So, so why are we here? My mission is to make our healthy way of life more accessible by helping you get your products on more store shelves and into the hands of more shoppers. So please help me raise the bar natural and share this all these valuable resources with any brand that you know, any friend, et cetera. And as a part of this, I leaned in after expo West was canceled and started doing these to help you grow and scale your brand. So let me know what keeps you up at night?

Dan: What are those bottlenecks you'd like to see solved? And I will do my best either put them on the podcast on the YouTube channel or put this on, put them on this webinar. And this is actually one of the topics that people have been asking me. How do you grow and scale and fund your brand and brand in unique times? And so with that, let me introduce you to Jessica. So, Jessica, thanks for coming on today. I appreciate your being here. Could you start by telling us a little bit about yourself and your journey to where you're at today?

Jessica: Yeah, first and foremost. Thanks for having me, Dan. I really appreciate you. Can you hear me now?

Dan: Yeah, that's perfect. Thanks.

Jessica: Great. Um, so thank you for having me first and foremost. I appreciate it. Um, yeah, so my name's Jessica, I am with Dwight funding. Um, Dwight funding provides working capital solutions, uh, all in the form of a revolving line of credit lending on ER, and lending on inventory, but we do so primarily to growing consumer product brands. So we understand the space very well, understand the needs of a growing brand in this space very well. Um, and we really make it a point to immerse ourselves in one the community, but also just have a general understanding or really actually an in-depth understanding of the various funding solutions out there. Um, as our funding provides a solution for very specific needs, there's a lot of other financial products available to brands as they scale that might better be a better fit or might cater to a specific cash crunch that accompanies is experiencing so well. We love to work with businesses in this space and help them fund their working capital needs as they scale. Uh, we try to take a more consultative approach, um, to helping brands find the best solution for them, whether that's us or whether that's another product, um, and really educate founders and, uh, financial teams to figure out what the best solution for them is as they scale. Perfect. Um, yes. I'll stop there.

Dan: No, no, that's actually a good start. I mean, and so why does this matter? So one of the things we've talked about last week, a couple of weeks ago, we had stew on green circle capital and we've had other people on that have talked about the importance of having enough money to grow and scale your brand. What unique about this particular topic is that those are things you need to be thinking about long in advance. You can't just call up a VC or an investor and then get them to get the money right away. If a large retailer, for example, were to say, Hey, we want you in a bunch of different stores. We need you to pivot and come up with a new package or whatever. Uh, sometimes you need money or you need cash right away. And that's the point of this. It's giving you something extra, extra tools in your toolbox that you can leverage to help with your growth. So with that frame, that way, first of all, is that a fair representation? And what could you add to that?

Jessica: Yeah, absolutely. Um, I think that w first and foremost, you, you brought up a really important topic, which is, uh, you can't, you can't just go to a VC. You can't just go to a debt provider when it's cash crunch time and expect to be funded right away. So what does that mean and how does a brand prepare, uh, for that scenario? Um, I would say one of the most important things is, um, initially a brand, uh, Mo uh, many brands focus on top-line growth, which is very important, right? Everybody wants to grow. Um, but oftentimes the financing and the bookkeeping and all that, all that, what I think is really important stuff is often put on the back. Um, my biggest piece of advice for businesses, uh, when they start the day, one day, negative 10, even day, negative 30, uh, start thinking about the financial foundation of your business.

Jessica: Um, you may not have the, you may not have the fundraising plan all put into place yet, but just know that you are going to, it's very likely, highly likely that you are going to need some sort of fundraising down the road, start preparing for that on day one. So what that means is make sure your books are in order, make sure your accounting is intact, made sure. Um, if you don't have a specific individual to focus on that, think about outsource groups. There are plenty of very, uh, reputable and, um, yeah, very reputable groups in the space that you that know this space very, very well understand the accounting needs of a business in this space, the bookkeeping, all that kind of stuff, leverage that, leverage those relationships, leverage those companies out there, but just make sure your financing is not an afterthought. The finance and the books are not an afterthought.

Dan: Love that. Thank you for going back there. Actually, that's really what we're talking about next week. And the point is that you need to have all that stuff buttoned down. I mentored Jessica with a lot of different brands that are trying to get money, trying to figure out how to grow a business, et cetera, for nutrition, capital network, or will providers the circle, and a lot of different groups. But the point is a lot of people show up and say, you know what? I sold $5 last year, and I'm gonna sell 5 million next year with no clear path to how they get there. But to your point, they overlook the key things that you need to have in place in your business. So from my perspective, again, we'll be talking about this next week. Your business plan is your roadmap and your business plan should be so robust that it, I could give it to someone else and they could run the company for me on my behalf, in my absence, meaning that all that stuff that's figured out, then that's in.

Dan: That is going to help you stay on the path and help you stay within whatever guardrails you've said. So you can grow and scale. So then when we have an opportunity for something in incremental, that's where you come in. But to go back to this for a minute, the reason this matters, and this is very, very important. So everyone listens to this is that the more buttoned-down you are, the more effective you're going to be at being able to get venture capital money or angel money. And the better your terms will be in terms of your billing ability to negotiate. So, you know, here's what I expect from my company. Think about shark tank and a lot of companies come on and say, Hey, I'm a nice guy, got a cool product, got a great slogan. Isn't this neat. And they course them get, but the companies that come in and they're dialed in and they've got a strategy, they've got a plan.

Dan: They know exactly where they're going to be tomorrow and next year. And the year beyond that in terms of sales and growth and distribution, those companies are the ones that can negotiate more effectively. And that all comes back to how buttoned-down are you. So thank you for sharing it. That's why you got to know your finances. It's why you've got to have your bookkeeping. Oh. And by the way, before you talk to an expert like Jessica, you need to have answers to those questions cause she's going to ask them. So does that help frame that does that

Jessica: Absolutely. Absolutely. Very, very well said. Um, yeah. And I think that you know, another tool in that tool belt and, you know, that's a good segue to the general discussion today is understanding the various funding options out there. Um, depending on the stage of your business, what your cash need is. Um, and what you're planning your go-forward plan is. So, um, you know, Dan mentioned VC, et cetera, and equity. Um, you know, equity has been a major source of funding in this space for a long time and it is, um, it's a necessary form of funding, right? And a good source of funding that can really help you count your growth. Um, and, and bringing this back to finance one Oh one that is what equity funding should be used for, um, any sort of needs that's going to give your business a longterm ROI equity funding is the right capital for that.

Jessica: It, matches the timeframe of when you're going to see that ROI with the timeframe of your, your payback to your investors, um, which is in the form of a liquidity event or a sale. Um, however, that's not, you know, one, it's an expensive form of capital because what seems to be a small dollar amount today can turn into a large dollar amount that that is going to be paid out in her future. Um, but it may not be necessarily the right fit given what that cash crunch need is. So that is debt is not at all a replacement for equity, but a really good supplement to that growth capital. So those expensive dollars aren't being, uh, aren't being used up too quickly and aren't being used on inventory built for inventory. That's going to sit on a shelf. You want to use that equity capital for the brand-building market, spend, headcount, anything that's going to increase that longterm ROI for your business. And then, uh, for other more short term funding needs, debt can be a really good solution, um, to take that thought even further under the debt umbrella, their umbrella, uh, there are a number of debt products that fit for very specific, uh, cash needs. So, um, I'm sure as we continue the dialogue today, and we'll talk a little bit about some of those specific products and what the specific need is that those products will, um, will best help you with

Dan: Thanks. I appreciate that. So back up a little bit, just so everyone's clear equity means you're giving away a chunk of your business to someone else. You're, you're saying is, if you think of everything as a, as a, like a scale, so I'm going to give you a chunk of my business and you're going to give me a bunch of cash. And with that cash, I'm gonna help run my business. So equity and then debt financing. You think about your balance sheet and you think about the, you know, how much, what are your accounts payables, et cetera. So that's how that fits it. But the reason this matters is as you're trying to grow your brand, and like Jessica said, and thank you for saying, for pointing this out, is that growing and scaling a brand with debt-equity using your credit card is the worst example that is extremely expensive because of what it requires and how it limits your ability down the road.

Dan: We'll talk about that in a minute as well. I'm sure, but equity is the best way to fuel your overall brand. Overall, I like the way you put that. It's the say the foundation of, of, of what you need to be able to grow and scale your brand. One of the things that Stu and I talked about is how as an equity-type investor, how he would either sell their brand or actually buy the brand, become an investor in the brand as a partner. And so that's critically important because you want to align with a company that understands your customer, your America, your segment, et cetera. This is why I invited Jessica today because this is something she helps with a different type of resource, a different set of tools. So, Jessica, as we're talking about as a brand, let's say that I've got my first round of investment.

Dan: And by the way, as we said, this is something that doesn't happen overnight. You've got to be vetted. You've got to have, you know, you see people get a deal on shark tank. That doesn't mean they automatically get that deal. Sometimes it takes months for any money to show up. Well, what do you do in the interim? How do you grow your brand? How do you do, how do you buy the inventory, et cetera? So that's, you've got to plan for that ahead. So thank you for sharing that. So in your position, how do you help a brand? Let's say that I'm working with you, first of all, let's back up. What do I need to know? Why would I work with someone that offers services and tools like you now that we've talked about the equity piece?

Jessica: Sure. So my Dwayne fundings product again, is an asset-based lending, revolving line of credit. It is really there to support the company's working capital needs. Why does it exist? So a CPG brand has, um, has a heavy need for working capital. So why one is it always gonna require inventory build? You have a tangible product that you are going to sell. You need to have that product manufactured before you can sell it. Oftentimes your manufacturers are going to have terms where you might have to pay a certain amount upfront, um, a certain amount of pond delivery, but even when that inventory is delivered and you have paid a hundred percent of the cost to acquire that inventory, it still hasn't been sold. And it still hasn't been paid for from fire customers. Now, brands that have had experience with many of the large distributors in the space called a unified, a cakey.

Jessica: It takes time to get paid for the inventory, even once it has been sold. So now you have a cash outlay to purchase the inventory needed to sell you then have to sell that inventory. And then once that inventory is sold, you're not paid for 30, 60, 90 days. So how do you fund your operations in that, in that time period, from the point you put money out to the point you actually get paid for that product. My product is a very good solution for that. So we basically lend a percentage on whatever inventory you have on hand and a percentage of whatever AR you have, and we give you that money upfront. And then when you're paid for your, uh, when you're paid on that AR when you're paid for your sale, you pay that line down that that, uh, balance is paid down automatically.

Jessica: So that's a really good product for that particular need. There are other products out there. So what you could say an easier way to think about that is smoothing out your cash flows, smoothing out your cash so that you're not having a large outlay of cash, your bank account's low. And then you get a bunch of money in 90 days and your bank accounts high. Again, it's just really smooth out that cash outlay for you, so that you can manage your operations. In the meantime, another product that is prevalent in this space and can really serve a lot of, uh, have a really good purpose for brands is purchase order financing, um, before, well, it could be before it could be, as your inventory has already been developed, but before you sell a product to a UFI, uh, CAHE Wholefoods, whatever, um, you're going to get a, an invoice.

Jessica: You're going to get a PO, sorry, you're going to get a purchase order. And you might, you never want to say no to that purchase order, but you might need help finding the funds because you have had some sort of cash outlay and your bank account isn't as high as you'd like it to be purchase order lenders, um, serve that exact purpose. They fund a percentage of your purchase order and pay the manufacturer directly for you. And when that product is sold off, um, they pay, uh, they pay the purchase order lender, and then the purchase order lender flows through any additional funds into the business. But what it does is it enables you to say yes to that order first, having a tight cash position, having to say no, and maybe not getting another purchase order from that customer again. So there's a lot of opportunity costs that, um, you are avoiding there.

Jessica: Um, and then there are other products for earlier stage businesses, such as cashflow, um, and revenue-based products where perhaps the business isn't quite, um, doesn't quite qualify yet for an asset-based revolving line of credit, but you need some funds specifically for businesses that have gotten a lot of revenue in the past couple of months. Um, a revenue-based lender will lend you a percentage of whatever your prior four or five months of cash flow or revenue was, um, which oftentimes can give you a bit more availability than, um, maybe an ABL or purchase sort of underwhelmed. It's a little more expensive, cause it's a little riskier for those lenders, but it's another option available for earlier stage businesses. So I probably just baffled too long. I'll let you take over.

Dan: That's fine. I mean, let's back up a little bit, so I appreciate your sharing it cause that's a lot of information. So go back a little bit. I've heard, I've shared this story on a couple of times where I was going through expo West and a brand that I talked to on the podcast actually, uh, she was about, I asked how things were going and she broke down in tears and she said that they don't know when they're going to get paid from unifying and unify K here. They all do this. But the point is that they sold the product and now they don't know when they're going to get the money that they need to support the rest of the business. In fact, actually, Eric's gay when he was on, he talked about how his wife called and said, Hey, I've got good news, bad news.

Dan: The good news is as if we just sold a truckload of stuff. The bad news is, is that we just got to check for is like a $19,000 sale. And the bad news was that they got $12 and 34 cents. So because of all the, you know, the, you know, any other there's a lot too, that we could go spend a lot of time going into that. But the point is that if you're a brand and you're expecting $19,000 and you get $12 and 34 cents, oops. Now what, and yeah. So that's why this is so important. So that's inventory. So let's, let's talk a little bit more about inventory. So inventory that, what, just to make sure I understand, make sure that we're being clear with everyone else. If I'm a brand and I have an opportunity to get an incremental distribution of incremental of stores, et cetera, we're talking about inventory as a product. I mean, as, as part of my, what I'm doing, so how do I approach you? How do I come to you? When does it make sense for me to come to you to focus on that specific product?

Jessica: Yeah. So good question. So here's what I'll say. Um, I would say, asset-based lenders, in general, are going to want to see a bit more maturity in the business before they start, um, start Monday. So I would say a company needs to call it one, 2 million in annual sales. Um, before an asset-based lending product will, will be readily available. Um, my biggest piece of advice is don't wait until you need the money to try to get the money. Um, the reason for that is, generally speaking, when you need money, the most, your balance sheet looks the worst and an asset-based lender is going to focus on your balance sheet. They're gonna, they're gonna first focus on your collateral and the health of your collateral, the health of your yard, the health of your inventory, but then they're gonna want to make sure that the company's cash position is okay and et cetera, et cetera, um, specifically relative to burn cash position relative to burn is helping.

Jessica: Um, so the last, so what I would recommend is, well, first of all, I might be biased, but I always think having a revolving line of credit for a working capital heavy business is it's a good it's, it's, it's really just a good thing to have, um, because there's going to be times that you want to build your inventory beyond what you have at, and you're going to have a big AR balance hopefully one day. Um, so something like a working capital line really, really helps that. Um, so getting one started a little bit early, um, before you have that huge crunch need isn't necessarily a bad thing. Um, and then you have developed a relationship with a lender and when your crunch time comes, they're more than happy to step up and, and, and assist and fund with those inventory needs. Also, we'd always take time to fund, right?

Jessica: So you want to work backward from when you're, when you expect that need to really come like really present itself, work backward to figure out, Hey, how long is it going to take me to go through this process, get approved, get funded. Um, and then, you know, will I have, will there be enough buffer that I still get approved because my balance sheet still is healthy. Um, when I'm applying, um, another thing that I will say, and that I'll kind of go back to Dan, that you pointed out earlier is talking about getting you paid from you, NFI K E and the dollar amount, not quite being what you expected to be when you get paid. Um, a big piece of advice that I very often give to brands is at an early stage. It is really important to surround yourself with friendly capital providers and capital providers that really understand the space that you, that you plan.

Jessica: Um, if, if you're working with a lender that doesn't understand the food and beverage space and doesn't understand how dilution is affected by a UNF and the cakey, it's not going to be advantageous to you. Um, cause when a lender gives you a percentage lens, a percentage on your invoice, and then you only get 75% paid on that invoice. They're not going to be happy. Whereas if you work with a lender that understands that and anticipates that they're going to work it into their formulas and it's expected, so there's no, no harm, no foul. Um, so I'll stop there now, but I wanted to make sure that I touched on that point, Dan,

Dan: Oh, that's a great point. And, and, and people need to be thinking about this. And I appreciate the fact that you're talking about finding friendly capital providers. This is where relationship building matters. So very much I used to years ago, dating myself would help people understand how to develop a credit rating, et cetera, used to work for standard and Poor's et cetera. And, and it was about how brands are very early stage, understand why that matters. And I would say, for example, go out and get a credit card, a store credit card and buy something. A pair of shoes doesn't matter, but buy something and then don't pay it back right away. Pay, make a couple of payments to establish yourself as being a credible risk to that, to that particular company. And a lot of people would say, but wait a minute, hold on.

Dan: I can pay cash towards that. That's not the point there's creditworthiness and their nurse. Cause it's been a while since I've thought about this. So there's the amount of credit you have and there's creditworthiness that goes into that. So if you, your creditworthiness, in other words, if, if you are only, if Willie trusts you to pay back a hundred dollars, we're only going to give you a dollar, a hundred dollars worth of debt. And you want to slowly build that up over time. You said love how you put that. So very irrelevant. You need to do that when you're in a good position so that when you're not in a good position, you've got that fallback. And so as you're developing that relationship with yourself and the lender, and you're proving your creditworthiness, that's where what Jessica's talking helps even more. So Jessica, if I'm a brand, can I start developing that with you? Or is that something that you recommend brands do outside of you before they come to you? If that makes sense.

Jessica: Yeah. So here's, here's what I would say. Um, look, we may not be able to start a lending relationship at much earlier than that one, 2 million in sales Mark, but getting to know founders and getting to know brands and seeing their progress pre million in sales, pre 2 million in sales all the way up leading to that point absolutely is encouraged. Um, you know, knowing, first of all, rapport matters so much. Um, and you know, I think that we are all very lucky that we are in the space that we're in because our space has, it's a small community and it's incredibly friendly, um, including, you know, a lot of the lenders out there and believe it or not, you know, there's a little big, bad, big, bad world out there of lenders. They're not always friendly and they're not, you know, so, um, I think it's really important to leverage the ability to build a relationship because everybody's so accessible in this space.

Jessica: Um, I can tell you if I know a founder and I have seen their progress and I've been excited about their, their growth from day one or day 10 or whatever. Um, I'm going to be excited to work with them when they get to the point that I can. So, um, I absolutely think it's important to start building a relationship, but not just for us, for the brand as well and for the founders as well, because the more conversations you have with me, the more you'll know whether or not you want to work with me and, you know, you want, you want to find that capital. You want to find that right fit specifically when you're scaling, you want to be surrounded by people that are excited about what you're doing.

Dan: Well, thank you for sharing that, because that is so important. We actually, that's one of the key things that we talk about a lot on this is that getting money from an ATM machine, that's cold and hard, you know, it's cold in plastic or whatever. They're just going to expect their money back right away. But if you're working with someone like Jessica who has a Rolodex who might be able to help you guide, you give you some information to understand more about the consumer that you're supporting that helps. And then again, the relationship is so very important. So thank you for sharing that. So that deals with inventory and inventory is I have a customer that wants to buy their product and I'm funding my inventory. So I've got enough on hand to be able to support everyday sales, et cetera. So the second thing you talked about was purchase order.

Dan: So purchase orders, when someone comes to you and says, I want to buy stuff that you don't have in your warehouse. So purchase order being different in that now you as a brand need to go out and fill that purchase order. So how do you work with me as a brand that has appealed a purchase order so that I can fulfill that? Can you explain a little bit more about that part of the relationship? What do I need to be a house, what size, et cetera, and by the way, keep, keep going? Remember that this keeps going back to what we talked about earlier, where you've got to have all your ducks in a row. This is part of your business plan, et cetera. But so I've got a PO when do I come to you? How do you help me?

Jessica: Yeah. So, um, I'll say that this goes back to what I was saying initially, where, you know, Dwight funding as a team, we try to take a consultative approach and we can't do it. All right. So we're actually not a purchase order lender. So if somebody comes to me for a purchase order lender, uh, I will connect them with the groups that focus on that specific product. Um, so purchase order lending, there's a bit more risk to it. However, their purchase orders that their purchase order lenders can fund purchase orders far, sooner than I could do a revolving line of credit. Because if you have a promise to purchase from a UNFI, a Kehe, or, you know, any retailer for that matter, um, that is for a purchase order lender. That is an exciting thing for them to help you fund your manufacturing on.

Jessica: Now, with that said, it's a bit pricier because there's an added level of risk to purchase order funding, and that is production risk. Anything could happen from the time that you get that purchase order to the time you're actually giving that product to the end customer. There could be issues with the product package. It could come out wrong, you know, so on and so forth. Um, so because of that production risk, um, appeal lender is going to be a little, a little more expensive. However, the way that it works is they will take that purchase order and say, Hey, okay, it's going to cost you this much to fund this purchase order. All right, it's going to cost you this much to produce the product for this purchase order. We will pay your manufacturer upfront. They will do the manufacturing process. You'll sell that product to X customer.

Jessica: And when X customer pays, uh, we will recoup the funds that we lend to you and you will get the remaining balance. So it helps for a very short term funding need. It's a great product though because you don't, again, it can help an earlier stage business where you may not have that asset-based lender, full well, full rounded product, and relationship lender. Um, but you need help quickly. And you don't want to say no to that order because there is an opportunity cost to saying, no, you might not get another order if you fulfill that order. And everything goes well, you now have a customer and hopefully a repeat customer. So, um, so it's a very important product. And, uh, and I, I'm glad you're touching on that, Jan, because, um, it is a separate cash crunch need. Then a revolving line of credit. That's continuously smoothing out your cash flows.

Dan: And I love the fact that you keep saying smoothing out your cashflows cause that's, so that's a lovely analogy. When you think about the ebbs and flows of a business that you know, a great visualization back to the PO, um, a lot of people brands, the mistake a lot of brands make is that they assume that that is a guarantee as you just illustrated. It is not, it is not a sale until it actually sells because of the reasons you mentioned, packaging, production issues, et cetera. Uh, imagine, for example, who would ever think this would happen, that you're selling a product and all of a sudden COVID comes along and now you physically can't get the product into a store, your products perishable, you don't have the ability to get it in there within a certain amount of time, et cetera, think about all the things that could happen, thus the risk.

Dan: And by the way, on that note, when you think about the risk, this is what all debt is, all financing is. This is what your businesses, the value of your business. If you can go to any lender, whether it be an equity lender or a debt lender, and reduce the amount of risk, thus the business plan, the more solid you are in terms of a business, the better the foundation that you build on that reduces the risk to them. So if you want to put yourself in a best, in the best position possible, you need to be thinking about how do I reduce the risk as much as possible to whomever I'm talking to so that I can get the incremental funds so that I can leverage that relationship to get money when I need money. Your thoughts?

Jessica: Yeah. Um, no, I, I agree with everything, uh, with everything you're saying, I mean, I can't, I can't harp on it enough, um, having not having that plan in place and not putting the things that are gonna matter down the road on the back burner for now, because they don't matter yet. It's, it's, it's setting yourself up for failure. It is. Um, it is. And, uh, back to what you were saying, Dan, about, um, risk, you're absolutely right. The more buttoned-up you are and, uh, it, and the more history you have and the more, uh, the execution you can demonstrate is all going to reduce risk. And you know, that, and by the way, uh, giving away a piece of your business for equity, that's also, that's a part there. The equity provider is getting rewarded for their risk, um, in, in helping you with your growth plans and executing on those growth plans. So, um, yeah, I agree with you in every area.

Dan: Thank you. So, and I appreciate your sharing that. So when you're thinking about risk, imagine that back in the old days, pre-COVID, if you would put your money into a CD or something like that at a bank, very slow, you know, a little low returns, very low risk, pretty much guaranteed for the most part, but the point is you would get almost nothing out of it. The high risk would be going to Vegas and throwing it down on the table. Right? So, yeah, you're absolutely right. And this is the mindset that brands need to adopt. When they're thinking about growing scale, your business, there are pros and cons to everything you do. And this again comes back to, and thank you for sharing that at the beginning of the conversation, you need to have a solid business plan. You need to have a solid roadmap.

Dan: And when you're talking about growing and scaling your brand, another issue that I find brands run into another huge mistake brands make is they take on any distribution, whether or not it makes sense or not. And that's a problem. So I share this example a lot. I was working with a brand in California that got picked up by distributor the distributor, put them in a store in Florida store in Indiana, and a store in Louisiana that doesn't make any sense at all because they cannot support that business. So this is why if you've got a solid business plan and you've got all your numbers dialed in and you've got a roadmap to where you want to be. Now, if I call up Jessica, I'm reducing that risk. If I go to Jessica and say, Hey, guess what? I've got an opportunity to support a store 3000 miles away or whatever, and another store, another thousand miles in a different direction. She isn't going to say, sorry. Hey, maybe, but, um, so those are some of the things you need to be thinking about. So thank you. So anything else about purchase order? Or do you want to jump into revenue-based? Yeah, we can jump into revenue

Jessica: Base.

Dan: Okay. So what is that? Why does it matter? Why do I care? How do I use it? If I'm a brand, when would I start thinking about that? At what point would it make sense? And, and how does it impact what I'm doing?

Jessica: Yeah. So there are some revenue based products out there, um, that is, I like to think of them as a solution for earlier stage brands that might not be able to find debt from a more traditional source. The reason I say that is it's expensive, that, uh, it'll still be less expensive than equity in the long run. I'm assuming plans go as, as, as growth goes as planned. Um, but it is a solution. Uh, it is a solution. And basically, the way that it works is rather than a group like me, mine might want to see historical 12 months of historical, you know, P and L and balance sheet. We want to see your growth, how you have grown your growth path forward. He's revenue-based lenders will say, okay, maybe you launched in January, but over the past, gosh, seven months now, I can't believe how quick this time was going.

Jessica: Over the past seven months, you guys have demonstrated huge revenue growth. So we're going to take the past four months to average out your past four months of revenue and give you X times that average revenue as funding. So it's also, um, it's also a very quick source of capital. Now, again, it's going to be expensive, but those kinds of lenders tend to work pretty quickly. So I would say just given the cost, it's more of a, if you really, really need the cash, like, do you need to hit payroll in a couple of weeks? And you think that that could be tough and you just need to get over a hump. Um, this could be a good solution. Uh, they're generally a quick payback. Um, but I would say that that's probably more of the last term, less, less option, um, when you've exhausted all the others. Uh, but it is a solution that's out there. So it's, we're talking about and there is a market for it. Um, go ahead, please. No, please.

Dan: And you brought that up, so we're not talking about a loan shark necessarily, just kidding, but yet this is where you cannot afford to miss payroll. You cannot afford to have employees walk off. You cannot afford to pay the lease on the truck or the whatever, because you needed to deliver the product. That makes good sense. And again, we're talking about the risk. We roar to you, the investor, the investor, the lender, and, and why that matters. So, so what other products are there that we should be talking about that people can consider? So we've got, we've got, um, inventory purchase, order, and revenue.

Jessica: Yep. Um, so I think the other product worth mentioning is venture debt. Um, so venture debt serves a unique purpose as well. Venture debt really extends it kind of bridges you to your next round. So I would say this applies to it. Doesn't so you can get venture debt even pre-revenue, but that tends to be more in like the world of tech, where investors come in and put a large amount of money into the business. When it's an idea that doesn't happen as much in the consumer. So venture debt requirements are they want to see that there's a venture group in there that a venture group has already funded your business. Now, if you, as a company know that your cash runway is six months, but in eight, nine months, you have some big revenue, uh, jumps happening because you know, you're getting placement in X, X, X store, and you would rather before raising again, you would rather achieve those milestones.

Jessica: So you get a better valuation on your business. When you do raise again, a venture debt, a venture debt loan can extend that runway six to 12 months, um, and asset-based revolving line of credit lending on the air lending on the inventory at smooth, those that cash out for you in your bank gives you, you know, two to three extra months of runway venture debt is really built to give you that six, 12 months of additional runway. And I call it quasi-equity. They are lending on the fact that you have a venture group in there, and that you're going to be able to raise again. So they're taking on a bit of equity risk and for the comp to be compensated for that, they will actually take warrants in your business. So they are taking a very small piece of your business as well.

Jessica: It's going to be far less than if you were to do an actual equity round, but, uh, but it is a lot riskier. So they are going to want to be compensated in that way. Um, so it serves almost as equity covers your CA your, uh, cash shortfalls, your profit shortfalls over that six to 12 months, while you hit those milestones and enables you to get a larger valuation, once those milestones are hit. Um, so I think that that's another important, you know, product to discuss, uh, because it does serve a very specific purpose. And I think that, um, I just think founders that are, that understand that there are various sources out there to serve very specific needs are, have the right toolbox and are well equipped to fund their business the right way.

Dan: Thank you for sharing. And that's why we're doing this is that we're talking about all the different vehicles. And the reason this matter is because you need to have a plan ahead of time to be able to take advantage of some of this. And so, as far as the venture debt, I love the idea. I love the fact that you're talking about that because I don't think a lot of people think about that. So let's break down the business. It's about buying things and selling things, right? And so, as you're growing and scaling your brand, you've got to have your strategy. You've got to have your blueprint, you've got to have your roadmap, whatever you want to call it. And along with that roadmap, as you said, you need to be thinking proactively so that you know, that you're going to run out of runway in six months.

Dan: And that was a key point I wanted to make. So thank you for sharing that. But if, you know, if you know that you're going to be cash strapped in six months, you can start planning for that today and reduce the risk for whoever might invest or whoever might subsidize that. So what I do is I help the brands grow and scale and reduce, I mean, increase the runway with strategy and stuff. That's why I'm focused on the trade-marketing piece. So, as an example, and I wanted to use this for this reason, if you know what your average spend is, how much you're spending every month and trade marketing, and you can maximize your promotional efficiencies and get an extra month or an extra two months, that's one strategy that's very effective, but in the event. But even with that, I should say, you still need to know, at what point are you going to be in a position where you need more money to fill to fund growth.

Dan: And this goes back to where we started, but you've got to have a solid business plan in place. And again, can't say it enough, as much as you can reduce the risks, the risk to you, that's going to help you more importantly. So to kind of recap, it's about the relationship. It's about proving your creditworthiness. It's about understanding your business well enough so that, you know, when you're going to have a need before you have a need, not after you, you know, the emergency. And then at the same time, it's about knowing about the solutions that are out there that you can leverage depending on what your needs are. Does that frame it pretty good? Any thoughts around that?

Jessica: Absolutely. Absolutely. And the only other thing that I would add to that is to use the network, use your advisors. You know, if, if there was no other takeaway from, you know, all of this, it is ask the people that know, if you don't know, ask the people that know, um, and you know, they'll help guide you. And as a, as a, as we discussed in earlier, this is a small and friendly community. People want to help. So if you don't know the answer, if you don't know the right solution, um, and you don't know who the right partner is, and you don't know where to start the relationship-building task, um, that's all I'd say,

Dan: Well, thank you. Because going back to, again, building that trust with your potential investor, it's a lot easier to go to them and say, you know what, I've got a problem. How do I solve it before it becomes an emergency rather than saying, Hey, guess what? Did I screw up? And I, you know, I missed an opportunity. I didn't feel appeal. I didn't, whatever. And, and that's, that could be catastrophic to your business. So thank you for sharing that. And again, that's what makes natural natural is that there are so many people here that are really rooting for you. And by the way, keep in mind that your success is also the success of whoever invests in your bunny, who in your business, right? Think about it this way. They want to know they want to trust that they're going to get a return at the end of the day.

Dan: And if you can help them feel good about that and help them feel good about the fact to help them sleep well at night, they're going to bend over backward to help you even more. And then when you get to that point where you need that second round of investment, et cetera, and by the way, on that note, keep in mind that those investments, again, they don't happen overnight. You've got to, it takes time to get vetted, get people involved. In fact, actually working with some different brands that are trying to get funding right now, especially during COVID, they're struggling. So deals that would take a month or two are now taking four or five, six months, and a lot of the money's drying up. So this is another reason why you need to be prepared. Your thoughts.

Jessica: Yeah, I absolutely agree. Um, I, uh, yeah, I agree. Um, diligence is harder these days when you can't meet with people in person. Um, I, yeah, I just absolutely agree to start, start the process and start the dialogue as soon as you can.

Dan: Yeah. And be aware of this because you know, another challenge that we're running in today is that big retailers are going back to the big brands that got them, you know, that, that can pay the slotting and all those ridiculous fees that are overburdened or overtaxing to small brands. And it's making it difficult for small brands to get on their shelves. So that's another thing, again, this is why you put together your business plan. This is why you have everything in place get dialed in. So that dialed in, in the sense that, that you've got the solutions you've got, you've got possible solutions to help solve your down the road. Thank you so much for sharing that. Any other thoughts that you want to share? I know we're coming up to the top of the hour.

Jessica: Yeah, no, I, I think that, um, I think that this was a well-rounded discussion. Um, I would just say, you know, biggest takeaways is day one, even before day one, focus on your business plan as Dan has mentioned many times, uh, and it, and rightfully so, it's an important thing get, uh, just because financing or the accounting or the book may not be hugely important today. Start it as if it's the most important thing, day one, start to build relationships in the community. And, um, and in terms of fundraising, you know, uh, figure out what your real need is, find the solution that caters to that need and then find the right partner, to help you fund that need. And I think, um, I think I, and that's it.

Dan: Thank you for sharing them. Are there any questions that anyone wants to ask? Cause we've got a couple of questions. So Janice asked, will this be recorded? Yes. I mean it's, well, it is recorded. Will this be available again? Uh, yes, it will be available. I did not record it in the cloud, so I need to convert it to a video and then put it on YouTube. And because of this top, it being so important, so valuable. I will be stripping off the audio and putting it on the podcast, not this coming week, but the week after. So you can look forward to it there. And then of course the video will be out and you'll be able to see Jessica smiling face and get to know us a little bit better. Um, so how should a company prepare for the debt process? That's asked by Tom,

Jessica: Tom. Great question. Um, so, uh, again, I think first and foremost, I think it's important to identify what your specific debt need is. Then find the lenders that provide those specific designees cater to those, those specific needs. And then start having conversations, start talking to each one of them, figuring out who's a good fit who, you know, who you think you could have the best relationship with, and who's going to serve the best value to the business as it continues to scale even above and beyond that, that taxable rate. Um, and then just again, make sure the books are in order, make sure the P and L and balance sheet are accurate. Make sure, uh, you have, if it's an inventory need that you have inventory controls in place, um, that the AR is up to date as much as it can be. Um, things like that. And, uh, and you know, lean on your advisors as well, like say, Hey, I'm thinking about going through that process. Do you think my books are in order? Uh, what do you think I can do to, to make it a little bit better or, or, or whatever the, so I would say build the relationship, first of all, figure out, figure out what your need is, make sure you're finding the debt partner that caters to that need build relationships, determine the best partner, and then make sure your books are in order

Dan: Well said. Thank you. And that's why please reach out to us if you've got a question. So Debra says, remember to connect with your small business development center, they can help you prepare for financing and connect you with various types of funding and, and their services are free. Oh, well said. Okay. Thanks, Deborah. Any thoughts? Anything you want to put in? Um, add to that?

Jessica: No, I think that that's great, that's great. That's a great resource.

Dan: I appreciate that. So, okay. The next question from Barb, what are some of the quantitative considerations of bringing on debt?

Jessica: Yeah, so, I mean, I think we've touched on some of that, which is just figuring out what your specific need is and making sure that whatever the terms are and whatever the structure is, is catering to that specific need. Um, and then you want to make sure that, you know, so I don't know if I would call this quantitative, but it's a part of the structure. So it matters. You want to make sure that you're, you're working with a flexible structure. And what I mean by that is you don't want to much financial covenant. Um, you don't want too many quantitative check-ins with your business or with, with your lender. Um, a lot of lenders out there put financial competence in place that is based on your projections. So they'll say, okay, your projections say that you're going to hit this revenue threshold by Q3.

Jessica: And then if you don't hit that revenue threshold, [inaudible], you might be in trouble with your lender. Um, I know I work with enough growing brands to know the projections are not always it. So if you can avoid things like that, avoid it because there's no reason for friction down the road. We all know that. And I think that also brings us back to working with a partner that understands your stage and understand your space, um, because a partner that understands those things knows that projections aren't always hit and you just don't want to have that friction down the road at the time, you might need it most, you might need that lending most, and you don't want for two with your lender then. So just try to make sure those financial check-ins, um, are light or not there at all.

Dan: Well, and this is where you can actually help negotiate by having a solid business plan, all that other stuff and help them remove some of those guardrails. Cause this is one time where we're breaking the rules can get you in a lot of troubles. So thank you for sharing that. Okay. So, um, just a minute. So what can you give a company considering the debt process?

Jessica: Um, yeah, so similar, similar to the first question asks, um, books in order, understand what your need actually is to find the product that caters to that need, and then find the partner that best is the best personality fit and the best, you know, uh, most flexible, friendly capital for you. Great. Well, I appreciate the process too late. Okay.

Dan: Thank you. Yeah. That's so critically important. You don't want to wait until after you've got the emergency after the break, so to speak. Thank you so much for coming on. Can you tell us a little bit about Dwight lending and then how do we get ahold of you and what unique, special, or whatever that we need to knows when we're thinking about why we should call you or how do we connect with you? What's the best way to work with you?

Jessica: Yeah, so you can certainly reach me on LinkedIn. You can, uh, by all means, there is a, uh, contact us, um, section on our website as well. I'm more than happy to have conversations, um, whether it's about our product or whether it's about, you know, what other funding solutions are out there. Um, you know, as, mentioned before we fall into the asset-based lending revolving line of credit category. So we are lending on AR lending on inventory with that said, um, we try to be the best funding partner we can be to the businesses that are, that we'd work with. Um, the relationship is very important to us as it, as it should be to you guys. So, um, you know, we like to add a lot of value outside of just that AR and inventory lending. Um, however, that's our main product and, um, you know, any time, anytime your AR is certain to get, you know, I, and you don't want to wait for those payments. Our solution is, is probably a good solution to consider, or if you need help on the inventory side or whatever the case may be.

Dan: And so to go one step further, this is where a specialist matters. So instead of just going to a general banker, that loans money, now, you're going to someone who understands your specific business, understands your specific needs, knows how to custom or tailor, make their recommendation to help you out the most. And this is why going to a specialist, a professional and an expert like Jessica makes all the sense in the world. Any last parting thoughts?

Jessica: No, I just want to say thank you so much for having me in by all means if anybody has questions, reach out.

Dan: Yeah. Your phone number. I mean, sorry, your name is in the chat. I'll be certain to put your information in the L on the sales, on the podcast page, in the show notes. So thank you so much for your time, Jessica. Thank you for showing up. Don't forget. Next week, I'm going to talking about your business plan. That is the foundation that makes all this stuff work and remembers that's what helps reduce the risk when you're going to talk to someone, Jessica, or any investor

Jessica: And any retailer by the way too. So thank you for your time. I appreciate it. And, uh, look forward to our next conversation. Talk, Dan. Thanks again. Thank you. Bye.

Dwight Funding www.DwightFunding.com

Thanks again for joining us today. Make sure to stop over at brandsecretsandstrategies.com for the show notes along with more great brand building articles and resources. Check out my free course Turnkey Sales Story Strategies, your roadmap to success. You can find that on my website or at TurnkeySalesStoryStrategies.com/growsales. Please subscribe to the podcast, leave a review, and recommend it to your friends and colleagues.

Sign up today on my website so you don’t miss out on actionable insights and strategic solutions to grow your brand and save you valuable time and money.

I appreciate all the positive feedback. Keep your suggestions coming.

Until next time, this is Dan Lohman with Brand Secrets and Strategies where the focus is on empowering brands and raising the bar.