The Shape of the Money
PACIFIC PREMIUM, FROM THE FOUNDER'S CHAIR
MANUFACTURING · THE FOUNDER'S CHAIR · DIFFICULTY 2/5
What do you take back to the bank on Friday?
Read your desk
// THE SETUP
You founded Pacific Premium fifteen years ago and you still run it. Two years ago revenue was US$28m; today it is US$42m, the best run the business has ever had. On Monday you asked the bank for US$1.5m more on the working capital line, US$3.5m to US$5.0m, so next month's procurement cycle is funded. Six years with the bank, never a covenant missed, never a review late. The relationship manager was supportive.
On Thursday the letter came, and it is not the letter you expected. The bank has declined the increase as framed. It does not say the business is in trouble. It says the working capital cycle has roughly doubled: customers that paid in 48 days now pay in 82; inventory has grown 138% on revenue growth of 50%; operating cash flow, positive US$1.4m two years ago, is now negative US$0.6m. The US$1.5m, the letter says, would cover less than a third of what the cycle has already absorbed. Instead it offers two shapes: restructure the existing US$3.5m into a three-year amortising term loan and put a smaller, properly sized working capital line on top; or renew the existing facility on tightened terms, with the next conversation to be about restructure rather than more.
Your commercial director, three years into the business, has read the letter twice. You have read it once, called your accountant, and asked another bank's relationship manager to come in on Tuesday. Friday is tomorrow.
Six clean years, the best year yet, and a no. What do you take back to the bank on Friday?
Two years ago your customers paid in 48 days and the business made cash. The bank's letter is written against that file, your own, not against your best year.