Beneficiary as well as victim of the new economy, middle manager Greg Garvis was offered early retirement in 1990 by a large but downsizing brewery. Steady employment be damned -- the then 29-year-old accepted with gusto. The incentive: a hefty bundle of cash. With it, he'd start his own business. Today when unemployed fellow terminees call on Garvis for encouragement, the young entrepreneur buoys them with the voice of experience: you, too, can do it -- provided you, too, have the patience to call on 12 different sources of capital.

Garvis's first stop (#1) was the nearly $20,000 in severance pay that the Fortune 500 beer maker awarded him for seven years of service. Hardly adequate to seed a business strictly from scratch, the sum did inspire him to comb the classifieds for something extant but cheap. For one thing, an already-going concern would make raising capital less of a tour de force of salesmanship: he would be asking people not to believe in some idealized abstraction but rather to invest in a tangible reality. And he wouldn't have to wait to draw a salary; whatever take-home showed on the seller's books, Garvis was confident he had the acumen to duplicate it instantly. "In a start-up," he reflected, "on day one there's no money to take out."

A student of cash-flow analysis, Garvis sought a business that demonstrated cash-flow potential; not a knickknack boutique but an operation that, stoked with sufficient capital and tended with know-how, had a chance of growing without limit. In November 1990 he found it: three-year-old BankTemps, about to close that year with revenues of $371,000. As a temporary-employment service, BankTemps, in Denver, supplies part-time tellers, bookkeepers, and other personnel to financial institutions caught shorthanded by holidays, illness, or expansion. No matter that Garvis lacked experience both in personnel and in banking: the price was right -- less than $100,000. He applied for a modest loan to buy the company.

And the loan officer turned him down. In response, the disillusioned Garvis withdrew all $15,000 from his savings account (#2); then he overdrew $4,000 more from his checking account -- using up its insured ceiling (#3). The bank's provision for overdraft recovery requires periodic payments of principal and interest; in issuing himself a rubber check, Garvis essentially executed the signature loan the bank had refused him.

Figuring he still needed around $90,000 (the extra was to see him through the first thin weeks), Garvis cashed in his entire 401(k) (#4). What with the 10% penalty (nondeductible) and his personal tax rate, he was able to keep only a fraction of the gross. The donation to Uncle Sam was money well spent: he invested the fraction that was his to keep in a business that was to become four times as valuable in three years. (See "Cash-Flow Growth Pains," below.)

As any aspiring entrepreneur should, Garvis had breathing room on his charge cards. The collection of plastic (#5) was good for an instant $9,000. At 21.9% per annum, the cost was usurious, but now he could approach informal investors (#6) showing he'd meet them halfway with money of (so far as they knew) his own. Another $15,000 followed from amateur capitalists' purchasing shares of the company based on Garvis's promise to buy back those shares on demand at $1.50 on the dollar within a year -- presuming he lasted the year.

To shore up his personal staying power, Garvis reduced his cost of living by (#7) moving into a small condominium whose monthly carrying charge was a mere $279 and (#8) sticking with his ancient Cavalier, a vehicle on which he hadn't had to make a payment in five years. He was deficient by about $40,000 -- close enough for him to bargain earnestly with the seller (#9).

Owners who put their businesses up for sale invariably expect cash -- but, Garvis had observed, they invariably don't get it. In the end most finance a portion of the price. Sure enough, in December 1990, the seller, anxious to retire to Montana, agreed to a five-year carryback of 40% of the asking price, at 11% annual interest.

In the new owner's first months, BankTemps' growth was impressive. So was its cash flow -- impressively negative. As sales rocketed from $24,000 in March 1991 to $99,000 that June, Garvis hired more temps to supply the contracts. He paid them from his own pockets because BankTemps customers didn't pay him for more than a month, which meant Garvis had to subsidize the temporary workers for weeks at a time.

As the business kept growing, so did its cash needs, always just beyond the reach of its internally generated finances. Garvis had to turn down potential sales because he didn't have enough cash to cover the payroll. Again, he appealed to bank loan officers. Again, they demurred. This time around, they wouldn't touch BankTemps' runaway growth. "That's when I had to beg and borrow from friends and acquaintances [#10]," says Garvis. Shown the company's obvious expansion (if not the obvious ability to fund it), friends and relatives kicked in "a thousand here, two thousand there" that added up to $24,000 in short-term loans. At the other end, Garvis appealed to his customers for better turnaround (#11). "Isn't there some way we can shorten payment, even by a day?" he implored. "Whatever I have to do, I will." The appeal was effective: customers upped their payment pace solely out of sympathy. Accounts receivable, which had turned over every 31 days, were now turning every 17.

The temporary-staffing industry is not highly profitable," he notes. "It doesn't make a 20% profit. When you double your sales, you have a cash-flow problem, plain and simple." Apparently, the problem is surmountable. By the close of 1993, Garvis had paid down all his major obligations save the one to the seller, which had two more years to run. Garvis closed out 1993 with $1.5 million in sales. And the number of BankTemps' employees had grown from one (Garvis) to six. Based on so fine a performance, one of BankTemps' many satisfied customers -- a bank, of course -- agreed to extend him a formal line of credit (#12).

CASH-FLOW GROWTH PAINS

"Cash-flow problems due to growth can put you out of business just as swiftly as declining sales," warns BankTemps buyer Greg Garvis, who overcame the company's capital shortcomings by tapping acquaintances for bridge loans.

The table (below) demonstrates BankTemps' changing financial condition by showing cash flow as annual earnings less the annual growth in receivables.

"My biggest miscalculation," admits Garvis, whose in-house team has surged from one (himself) to six employees, "occurred in underestimating the costs associated with added staff due to growth. Also, I had assumed that year-end numbers reflected actual cash needs throughout the year."

Instead, Garvis discovered, receivables in the temporary-employment industry fluctuate markedly. In the third month of 1991, they surged to $65,000 from a 1990 monthly norm of $23,000. Taken by surprise, Garvis had to raise money from friends and relatives to cover the salaries and taxes of his temps. He could promise to reimburse them based on those receivables' being collected 30 or so days later.

A similar pattern of catch-up unfolds every year, and it remains a cash-flow challenge, since it's magnified by BankTemps' 75% annual sales growth. In several months during 1993, receivables soared more than $100,000 over annualized monthly projections. Garvis's friends and relatives no longer have to foot the bill, however. Now that he's proved his creditworthiness, he is cushioned by capital source #12 -- a $250,000 revolving line of bank credit.