It is a good thing that Roger Dreyer has a passion for magic. Over the past 18 months, the 48-year-old tried nearly every trick in the book to find the expansion capital he needed to grow his business, Fantasma Toys Inc. He turned to traditional bank lenders for working capital, with no luck. Even though he had a backlog of orders from the likes of Costco and Toys "R" Us for his firm's specialty magic sets, the deep recession made credit disappear. So like the chief operating wizard he is, he found an innovative approach to his dilemma.
The stars aligned last July after Dreyer's accountant suggested he opt for a specialized form of asset-based finance in which money is lent against a company's purchase orders. Since New York City based Fantasma outsources its manufacturing to factories in China, this funding approach would work like a transactional line of credit, thereby giving foreign suppliers the letters of credit to secure 100% of the cash they need to produce the goods. Wells Fargo operates in this specialty niche and eventually provided $3.5 million so that Fantasma could fulfill its orders. Today the company has profits of $950,000 on $10 million in sales. "It was the game changer I needed to grow my business," Dreyer says. "Without it, my company's sales may have been cut in half."
This tale demonstrates how during these challenging economic times, entrepreneurs like Dreyer have come up with inventive solutions to help their companies stay afloat and remain competitive. As Andrew Sherman, who works with emerging growth companies at Jones Day, a law firm in Washington, points out, "Now is the time business owners have to become bootstrappers and reinvent all their strategies from how they finance their business to how they market and sell." While waiting for the economy to bounce back, here are some turnaround ideas that entrepreneurs are using.