• Joe Valentic

Will You Run Out of Capital Before Achieving Your Vision?

Updated: Apr 22, 2019

One of the greatest risks any business faces is running out of capital when you need it the most. This can be the difference between achieving breakthrough growth, barely surviving or potential business failure. Unfortunately, it typically happens when you least expect it and often to businesses that thought they had adequate capital.

When a business runs out of capital or hits a wall with their bank, then they are left to negotiate from a position of weakness, not strength, not only with their capital sources but with their employees.

Once employees begin to question a company's capital position, it can have a disastrous affect on morale, lead to turnover and even the inability to attract new talent. These are not typically the situations any business owner wants to end up facing. So how do you make sure this does not happen to you? The answer is to optimize your capital position now, before you need it.

One of the greatest examples of a company optimizing its capital position was Ford Motor Company, prior to the Great Recession. I will never forget the day I read in a local Detroit newspaper that Ford had agreed to fully collateralize all its loans, to increase its credit facilities. As a commercial lender at the time, I was really stunned by this. I had never imagined a scenario where the legendary Ford Motor company would be in so much trouble that they would need to fully secure their debt. But in hindsight, the move by Ford was actually brilliant.

Ford's relatively new CEO at the time, Alan Mullaly, had the foresight to see rougher times ahead, before things would get better. So in November of 2006, he took the precautionary step of arranging the capital Ford would need to weather the storm, some $23 Billion in debt. To many it seemed an act of desperation. But come the day when Ford, GM and Chrysler were called to Capital Hill to testify before Congress, Ford was the only one with their chest held high as they said: we do not need a bailout, we are just here for moral support. Yes, in retrospect it looked like a stroke of genius. But in reality, it is precisely what real business leaders should be doing - thinking ahead and planning for their capital needs.

In order to ensure you have the capital you need, when you need it and in the form you need it, you must effectively plan for it both long term and on an annual basis. In order to effectively plan for capital needs, this is not a simple question of what's my cashflow or working capital needs for the next couple quarters. This is not about today, this is about achieving your vision and ensuring the continued growth of your company. In order to solve for those needs you must take an integrated approach that aligns all of the following:

  • The long term vision for the company (and if you are the sole owner, your personal vision for your end game)

  • Strategic Plan

  • The team needed to drive your plans

  • The systems/processes to allow you to scale

  • Capital structure and amount

If you are not accounting for all of these, you will likely not have the capital you need, when you need it, in the form you need it. By taking an integrated approach to your capital you will be able to determine the timing, the amount and the mix of capital you need. The last item, the mix, is critically important to assess ahead of time. Generally speaking, the options for capital include: personal, organic, bank financing, non-bank lenders, mezzanine debt, and equity. Each of these sources of capital has its own features, advantages and risks. But the determination of what is an advantage or risk is not an absolute. In each situation, it really comes back to the vision of the company and it's stage in it's life cycle.

There is no one right answer or one ideal mix. It is both a business planning decision and a very personal decision for privately held businesses. On the business planning side, much of the decision is arrived at very logically based on the vision, the plans and timing. However, on the personal side, the calculus can get very interesting. It is not just a question of mathematically determined financial goals, but of intangibles that can only be answered by an owner, such as:

  • What is your appetite for risk

  • How much gas do you have left in the tank

  • How you contemplate your employees in a transition

  • Do you still have a passion for the business

  • Are there other personal, social or family objectives that are on your heart

Ultimately, the question of capital begins with the end in mind. An owner must formalize his or her objectives in order to design a strategy to achieve them. Then the combination of personal objectives and corporate strategy can be effectively qualified to determine the appropriate amount and mix of capital. As you can see, these are weighty questions that will no doubt take some time to formalize, but if you have not made these decisions, time is of the essence. If you do not make these decisions, someone else will, and it is highly unlikely they will have your best interests at heart.

The Navy Seals have a saying that the enemy gets a vote, but they see their job as planning ahead and leveraging a first strike mindset to eliminate the enemy's ability to vote. Business leaders need to take that first strike mindset when it comes to capital, so others don't vote for them!

How We Can Help

It is often very helpful to have an objective third party to help you sort through the areas we have discussed above. We are passionate about helping people and organizations to achieve their vision and obtaining the capital they need to support it. We would love to help you optimize your capital. We have a unique approach that helps businesses truly integrate vision and strategic planning, with the capital they need to execute on them. Please email Joe Valentic at, to arrange an initial discussion.

Look for Our Next Blog post coming soon - "Are You Working More IN Your Business than ON it?"