Not only is financing a startup business a challenge, but sometimes remaining fiscally fit for survival is

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Not only is financing a startup business a challenge, but sometimes remaining fiscally fit for survival is itself a difficult hurdle to overcome. The first three years of starting a business can be the toughest, but how does a company that has been operating for several years continue to find sources of financing? Economic conditions, products, and customer bases can change, sometimes leaving a once-sustainable company in jeopardy of not meeting the day-to-day expenses of operation.

Managing cash flows invariably takes more than just matching payables with receivables, covering payroll, and paying taxes and insurance. As business conditions change, so can the money coming into a company. Even after startup loans have been retired, a line of credit or loan from a good funding provider is essential to keep a business moving forward.

Moonwalks, a Rhode Island-based remodeling business founded as Moon Associates in 1993, enjoyed a modest rise to financial success by selling a product called GutterHelmet. Backed by the financial resources of BankRI, president and CEO Jim Moon turned GutterHelmet into a household name in New England by marketing it with help from local celebrities. Between 1993 and 2005, Moon Associates grew to $14 million in revenue by selling the product throughout New England, New York, and southwest Florida, while working out of a 10,000-square-foot building the company owns in Woonsocket, Rhode Island. During that time, the company installed more gutters in the New England states and New York than all other gutter companies combined.

As business boomed, Moon assembled a top-notch management team and started offering other products like garage organizing systems and hurricane shutters, but GutterHelmet remained the company’s largest cash generator. To set the stage for future growth, the company’s management began implementing industry-leading business systems.

The tide started to change in 2006. The market for gutter protection and remodeling showed signs of weakening in a slowing housing market, and the competition started putting a dent in GutterHelmet. There was no seasonal uptick in fall orders, and Moon Associates began exploring other means of generating operating cash, including the sale of their Florida operation. About the same time, Andersen Company’s full-service window replacement division, Renewal by Andersen, had entered the Rhode Island home improvement market and was seeking a partner. After months of negotiation, Moon Associates struck a deal to be the sole southern New England partner, and Renewal by Andersen of Rhode Island soon debuted. With this partnership, Moon Associates was positioned to serve its existing customer base with Andersen’s stylish, energy-efficient windows.

Yet the partnership didn’t provide Moon Associates with the necessary boost. In 2007, GutterHelmet sales dropped 50 percent, to $6 million. Despite efforts to advertise on the Internet, new business leads were hard to generate. Renewal by Andersen of Rhode Island endured the normal financial hardships of starting up, and Moon Associates’ bottom line went in the red after total company revenues plummeted 30 percent. Moon Associates needed something more than a new product line or division to return the company to profitability.

New England winters can be hard, and the winter of 2007/2008 was even tougher for Moon Associates. For the first time, the company’s management team had to figure out how to turn around a negative bottom line at a time when business, in general, was changing. Moon went back to the drawing board to look for top-level talent. Local celebrities weren’t the answer, so he recruited industry veteran Paul Thibeault, formerly Home Depot’s Home Services northeast manager, to inject muscle into the company’s sales force. But building sales would take time, and the company needed new capital to move forward. Moon Associates called on an old friend, the company’s long-term financial partner, BankRI. Banker Matt Weiner and BankRI believed in Moon Associates’ business plan and increased the company’s credit line to keep Moon Associates on track.

The capital enabled Moon Associates’ management team to play a hunch that Renewal by Andersen of Rhode Island could make a dent in the Cape Cod, Massachusetts, market. Further, the company diversified its product line to include general exterior home replacement products like roofing and siding, as well as insulation and hot water heaters. Moon Associates changed its name to Moonworks and shifted its focus to being a leading regional home improvement company and began to emphasize repeat customer business instead of new customer generation.

By the end of 2008, the company had emerged from the red and had a solid black bottom line. Revenues had grown 39 percent, and cash flows were positive. Moonwalks were named the “Best of the Best, Smaller Market,” an award that goes to the best-performing Renewal by Andersen dealer in the country.

Moonwalks continued to grow over the next two years, again receiving top recognition from Renewal by Andersen, while expanding its window-remodeling territory into Hartford and northern Connecticut. In 2010, the company posted revenues of $12.7 million, more than twice that in 2007. A crowning achievement was the company’s receipt of the “Big 50 Award,” Remodeling Magazine’s annual award recognizing exceptional performance in the remodeling and replacement contracting industry.

Q.On what three priorities might BankRI representative Matt Weiner have based the decision to extend Moon Associates’ line of credit or offer additional financing? What are the “five C’s of credit”?