51.5 F
Laguna Hills
Thursday, Mar 28, 2024
-Advertisement-

Time to Decide

Ask any small business about keys to growth and they’ll likely bring up cash flow.

Making sales is tough enough.

Making sure cash flow meets the needs of a small business that’s growing can be scary.

Laguna Beach-based Auri Inc. recently offered an example of the lengths some small businesses are willing to go when banks aren’t lending.

The shoemaker went public in an effort to raise money by acquiring North Carolina’s Wellstone Filter Sciences Inc. in a reverse merger.

Wellstone holds a patent for a cigarette filter and has no revenue.

It does have a listing as a public company on the low-profile Bulletin Board exchange, a potential avenue for raising money.

“I wanted to make sure that we didn’t run out of capital resources,” Auri Chief Executive Ori Rosenbaum said in an earlier interview with the Business Journal. “The worst thing is to have a product going gangbusters and not be able to supply it or do those things to support it from a branding and marketing perspective.”

Brand Expenses

Cabo Foods Inc., a Laguna Hills-based maker of organic tortilla chips sold under the Cabo Chips brand, is reviewing its options as it seeks cash flow to support growth.

“We’re looking at a traditional bank for a line of credit as a temporary holdover, but I think to compete with big brands we need marketing support with in-store reps, a budget for store advertising and so on,” said cofounder Christian Bunte. “So we’re looking to an investor deal for that.”

Bunte would prefer a strategic investor with experience in the food industry.

“I may only be 27, but I know the industry pretty well,” he said. “That said, a strategic investor will be able to provide the direction we’re looking for.”

Good Start

Cabo Foods has laid a base for growth.

The company’s chips are sold in upscale supermarkets such as Bristol Farms, Gelsons and Whole Foods, as well as Ralphs and warehouse retailer Costco.

Distribution covers markets west of the Rockies and Michigan.

Sales last year were around $500,000 and the company is on target to double that this year, according to Bunte.

Cabo Foods still needs cash to foster its growth and compete with big brands, such as Frito-Lay.

The company hopes to have a deal worked out by the end of this year.

“We have a lot of brand awareness and distribution right now, so it’s a great opportunity to build off of it with additional marketing support,” Bunte said.

Bunte’s father started Cabo Foods in Cabo San Lucas in 2004. Bunte moved the company to Orange County, with his father remaining as an investor.

Now he is looking for another $500,000 to $1 million investment to get over a cash-flow hump.

“We’d be able to build a formal company,” said Bunte, who currently handles production by himself.

While small business loans still are being done, tight credit remains a challenge for many entrepreneurs.

That led Brandon McKennon to start Breeze IT in Irvine with backing from investors.

McKennon, 27, had been in banking and the experience led him to choose a different path than a small business loan.

“Coming from the banking environment, I knew how tight credit was, and how difficult traditional financing could be,” he said. “Even though banks say they are lending, I knew it was going to be a pain.”

Breeze IT provides information technology services to other businesses. McKennon started with partners Daniel Bistany and Chris Bergen, and some funding from an outside investor last year.

The three founders put up about half the money needed to get started and sought help from a number of investors. They showed their business plan to prospective investors, including friends and family, and ultimately found an angel investor who’d had success in the IT industry.

The deal came together at the investor’s Newport Beach house.

McKennon declined to identify the angel investor.

So far, business has been good for the company, which will be a year old in August, he said.

“It’s been peaks and valleys,” he said about the first year. “Any venture you start up really does require an extraordinary amount of time and resources and it’s no different for us. I can’t tell you how many long weeks we’ve put in, building that foundation and growing it.”

McKennon is anticipating the strain on cash flow that growth could bring.

Additional investors are lined up for when it comes time to expand the company sometime in the next 18 months, he said.

“We’re growing our client base every week, and working with well-known companies and prospects,” McKennon said. “We have a very aggressive growth forecast.”

Charitable Twist

Startup Epic International in Newport Beach, which sells watches and interchangeable bands, is a company with a charitable twist.

A portion of each sale goes toward distributing ceramic filters to combat disease by ensuring a clean supply of water in Haiti.

The idea for the company stemmed from a trip owners Jeff and Jackie Bird took to Haiti in July 2010, six months after a 7.0 magnitude earthquake rocked the Caribbean nation.

They returned home determined to help.

Five months later, with about $20,000 of their own money, they launched Epic International.

The watches are sold via the company’s website, epictimepieces.com. They go for $39.95, with bands priced at $20 for the first one and $7 for each additional purchase.

“We’ve had a hard time keeping up with the inventory,” Jackie Bird said. “We’ve had to keep investing in inventory and marketing, and costs in general.”

Each of the Birds has a full-time job in addition to Epic International.

The company has been able to deliver clean water to Haitian communities for a couple of months now, Jackie Bird said, but it’s facing challenges building a brand in the competitive watch business.

“We’re seeing the battle,” she said.

Despite that, the couple isn’t seeking an investor.

“If a deal were to materialize, we would actively consider it,” Jackie Bird said. “But right now, we’re focusing on increasing sales and getting into retail stores in late 2011, early 2012.”

Other small business owners, such as Jane Hodgdon of Irvine-based bra maker IBB Designs and Karen Allard of skin care and hair products company SBR Sport Inc. in Santa Ana, aren’t quite ready to give up their “baby” (see related story, page 22).

“It makes me nervous,” said IBB’s Hodgdon about an investor deal.

IBB is best known for the Itty Bitty Bra for women seeking smaller sizes. The company, which started in 2007, has added camisoles and panties more recently.

“Typically, (investors) want a piece of your business or something along those lines, and I’m just not ready to give them that,” she said.

Such misgivings linger even though Hodgdon eventually would like to expand her business overseas and into department stores—a strategy she’d be more likely to pursue with financial backing.

Allard of SBR Sport, which specializes in chlorine-removing products, has enough cash flow to keep her business going if she stays with mom-and-pop shops or smaller chain stores, she said.

“If we want to go into big box stores, we’ll need funding,” Allard said. “It’s having the marketing dollars and enough inventory to keep on site. If (stores) sell out of the product in a week, we need to be able to satisfy that kind of purchase order.”

Considering cash-flow options can be stressful, she said.

“At this point we haven’t exhausted all the smaller stores, sports-specific or beauty shops,” Allard said. “We’re about a quarter of the way through it. I feel the stronger root base we have, the better our foundation.”

Gomez is a former Business Journal editor and freelance writer in Long Beach.

Want more from the best local business newspaper in the country?

Sign-up for our FREE Daily eNews update to get the latest Orange County news delivered right to your inbox!

-Advertisement-

Featured Articles

-Advertisement-
-Advertisement-
-Advertisement-
-Advertisement-

Related Articles

-Advertisement-
-Advertisement-