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How an innovative Aussie business kicked cash flow issues to the curb

Posted 7 months ago in Small business by Erin Smith
Posted by Erin Smith

In 2014 former colleagues Armin Kuhestani and Laurent Lambert took a calculated risk to leave their steady recruitment jobs and set up Ad-Roller Australia – becoming the only company in Australia to provide advertising on escalator handrails.

The concept meant bringing a new product to an already crowded market – advertising space in shopping centres – and competing with traditional advertising space in newspapers, online and on billboards.

“I once went to Germany and saw this concept of escalator handrail advertising,” explains Armin. “It struck me as a great idea – so I got in touch with the people who did it.”

With no advertising experience but armed with advice, Armin and Laurent launched Australia’s first handrail advertising company, Ad-Roller Australia.

Conversations, conversions and shortfalls

“We expected to be flying in year one,” Armin admits, “but we couldn’t really draw even a small salary until the second year. It’s only in the third year that we’re sustainable.

“We knew if we could just talk to the right people, we could make it work. So we went into shopping centres, and gradually learned who we should be speaking to.”

These slow and steady conversations turned out to be pivotal – opening Ad-Roller up to lucrative opportunities with some of Australia’s leading brands, who have since become loyal clients.

“It was an exciting evolution, but we quickly realised that cash flow issues would become a big problem for us during our first major project,” says Armin. “We had to pay upfront costs to the shopping centre before the handrails went up. We wouldn’t get paid by the client, via the ad agency, until over two months later.

“This translated into a shortfall of around $80,000, which is difficult for most small businesses to cover at short notice.”

Plugging the cash flow gap

To ensure their cash flow gap didn’t stifle early business growth, Armin and Laurent sought lines of credit and other financing solutions from banks.

“We learned that if you are a small business in cash flow strife, it can be difficult to get business credit card and overdraft from a bank,” says Armin. “So, next we looked at debtor financing companies, who pay the invoices straight away.

“But they usually take around a 10 to 20 percent cut and that wasn’t sustainable for our profit margins – as good as the financing model potentially is. So we went back to family and friends for short term loans.”

Managing the nuances of an operational model are one thing, but the unpredictable question of late payments compounded the problem. A client is late to pay at least once every quarter, Armin says.

“We did a range of things to try to overcome these cash flow gaps in the early days. Sometimes we’d take a top-down approach by talking to senior directors about changing payment terms, but more often, we’d end up using borrowing money from family or using our personal savings.”

The lessons learned in hindsight

Now in its third year of operation, the business is sustainable and profits continue to grow. And while cash flow and late payments can still create obstacles, the team has learned timely lessons along the way.

  • Chase money to come in earlier
  • Build savings earlier on as a buffer – you don’t want to say no to big projects that could prove to be the breakthrough for your business
  • Get an overdraft if possible. Don’t be afraid of maxing it out if you know you can cover it
  • Review your overheads and see what items can be temporarily reduced (e.g. salaries, office rental, etc.)
  • Rent out your personal property if you can (even a spare room)
  • Research your market thoroughly before launching to expedite your business
  • However long you think you can go without drawing a salary, double this period
  • Use Xero to forecast cash flow and predict your budget in advance
  • Set fixed costs in Xero to help with cash flow forecasting, to make this planning easier – such as marketing, coffee meetings, travel and so forth.

“I can see how much early savings help as a buffer to cover late payments and other cash flow challenges,” Armin says, in conclusion. “Whatever you think you will need to live off until your business is profitable and able to pay a salary, double it.

“If you don’t think your savings will support this length of time, consider holding off launching your business until more savings are in place.”

For more advice on tackling late payments, visit www.xero.com/au/cashflow-gap

One comment

Dan
March 30, 2017 at 11.34 pm

Great effort guys. Well deserved and lovely to see the business going from strength to strength and just rewards for all your hard work, determination and vision.

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