CK Arts Inc. has done a good job cementing its future to the increasing interest in Southern California's historic buildings by putting in place many of the basics needed to position the small business for growth, financial consultant Maryellen Galuchie says.
In addition to the masonry restoration expertise of business partners Charles Kibby and Anthony Tucker and the proven demand for their services, they've got a good accounting system, an experienced accountant and, with the addition of Tucker, professional financial management.
"This is a conservative company from a financial standpoint. They are not over-leveraged, they are not over-extended," says Galuchie, a managing partner based in Riverside for RSM McGladrey Inc.
The company is exploring options for long-term financing for its development: Sales are expected to triple this year to as much as $8 million. Tucker has worked out projections that show how cash flow will cover the Los Angeles company's growth through the end of the year, when receivables are expected to triple to $3 million from the current $1 million.
Supporting sales of "$8 million kicks over to uncomfortable -- not undoable, but uncomfortable," Galuchie says. Galuchie's ideas to fund CK Arts' growth could serve as a primer for many small businesses.
* Permanent capital. This is money that company owners put into a business. It is also the assets, such as inventory and accounts receivables, that result from spending that "owner equity" to create sales.
CK Arts easily had enough when revenue was around $2 million to $2.5 million a year because it was putting profit back into its operations.
It's important for a company to do so, says Galuchie, because that capital is what a bank or other lender looks to as a financial cushion in case a job falls through or a client delays a payment. The cushion could be used to cover the bank loan payment.
She recommends that Kibby and Tucker enhance their business plan and cash flow projections to show how they will build up that permanent capital through additional reinvestment in the business -- "hopefully in a short amount of time because they are pretty profitable." The amount needed to fund growth is different for every industry. Piling up capital is especially important in today's uncertain economy, she says.
"You have to have a certain amount of that, then the banks, the lending institutions, say, 'OK, you have enough skin in the game, I'll start lending to you.' " Galuchie says.
