The investor wouldn't let me take my loan back

When the business had been in operation for nine months, some customers didn’t pay on time and the business was running short of cash. I knew they would eventually pay, so I loaned the company $10K. I didn’t make any formal documentation because I was going to get the money back at the end of the month.

At the end of the month, we had to order more inventory because sales were growing faster than expected. With my track record, I raised a seed round from friends and family and one outside investor. I wanted to get my loan back because I don’t take a big salary. The independent investor said there was no legal agreement in place and that if I took the money out, he wouldn’t invest.

The importance of inventory and cash management

After leaving business school I moved back to my home country and started a retail business with money from family and friends. I had taken classes in finance, operations, retail management, and two in entrepreneurship and had done very well. I felt well-prepared.

I opened a bank account in my home country and started importing stock from the US and China. Sales went really well for the first 6 months. Then the economy started to slow and my sales also slowed. Inventory started to build up and the store began to look bad with stock from different seasons and odd sizes and colors piled up.

I had 30-day credit with my suppliers but I had to place minimum order quantities. The rent had to be paid at the first of each month and the shop staff were paid every two weeks. I did not want to reduce the margins as this would affect my profits even though everyone else in the shopping area where offering 40-60% sale discounts.

I always planned to have 45 days of cash in the bank but with slow sales, suppliers’ payments, salaries and rent, I found myself caught short. I had piles of stock but less than a week’s worth of cash and I could not pay the next month’s rent. By the time I decided to cut my margins and liquidate my stock, it was too late. I had to borrow more money from my family just to stay afloat. It took me 10 weeks to recover and over 6 months to get my credit line back at the bank.  

Always know what's happening in your supply chain

I have an apparel company employing different local tailors. We were launching our next collection with a fashion show. The tailors said they would have all the clothes ready by the 1st of the month, in time for the fashion show. I was totally focused on the show and assumed all the suppliers would do what they promised.

A week before the show, I went to one of the tailors and learned that he had only completed 10% of his quota. I looked at the garments and there were serious quality issues. The zippers did not work. The sleeves were different lengths and there were not enough stitches per centimeter. I panicked.

I went to seem some other tailors and the situation was no better. They had let me down. They all said “but I didn’t hear from you or see you, so I didn’t think it was urgent,” or “someone else came in with an emergency job, so I stopped working on your order.