There's a new TV show I've become addicted to. It's called "Storage Wars." In a nutshell, it's about buying the contents of storage units after the owners have abandoned them. In the show, the main characters try to outbid and outsmart each other to bring home the prize lockers. They're all in the "used" or "secondary" merchandise business. Some have thrift stores, one sells at swap meets and, of course, the word "eBay" has been mentioned more than a few times.
While I may never go and bid on the contents of a storage unit, I find watching these small business owners fascinating. The dynamic between them, and how their personalities play a role in their success, is almost as important as how much money they have in their pockets. Time after time, Dave, one of the men on the show who has plenty of cash, takes away the units that contain cars, restaurant equipment and even diamond jewelry from the underfunded and always scratching Jared. It's not just Jared, though—even the other bidders lose out to Dave, because in the end, he always has the cash on hand to go the distance.
It drives home the point: Even a business that specializes in selling in the secondary market has to have a healthy cash flow to keep inventory on the shelves.
Most banks don't consider Top-rated seller status an acceptable notch under your belt
Where can you get more cash?
The problem is—especially in an eBay seller's position—finding capital funding (that roll of cash to bid with) may be next to impossible, once you've run out of friends and relatives to borrow from. Sole proprietors have never been the banks' favorite business when it comes to lending money. When I first started my eBay career several years ago, my banker gave me a blank stare when he heard I sold on eBay. You've seen it, that "What's an eBay?" look.
With traditional financing, you may be asked to put up your home as collateral on a loan. To me, that's risky business. It takes time to build up your company's credit rating—and most banks don't consider Top-rated seller status an acceptable notch under your belt.
What can you do? Well, continue building your relationship with your bank. Check in and get to know them. This way, when it comes time to expand your business, you'll already have built a rapport with them. Just don't expect it to happen overnight, especially now that credit is tight.
In the meantime, for short-term working capital that keep your inventory flowing, you may need to look elsewhere. Credit cards are an alternative… but definitely not something I recommend.
Last year, I met the folks from Kabbage.com. The business model is simple: help sellers with their short-term cash needs. The company started out by serving eBay merchants, but recently secured $6.65 million in venture capital to expand to other marketplaces like Amazon, Etsy and Overstock.
Kabbage.com offers short-term advances that go directly into your PayPal account. And, yes, they do consider your eBay feedback an important indicator of your credit worthiness.
Wow, a company that understands how hard it is to keep good feedback, and factors it into the equation!
What if you had more cash to buy inventory?
eBay sellers have all felt the downward pressure of retail prices, and I'm no different. I've been tweaking my inventory mix over the last couple of years. I'm always on the hunt for higher margin items I can sell. Just like everyone else, I have to experiment with the mix while balancing my cash flow.
Last June, I was invited to participate in the Kabbage.com beta program. It was easy to walk through the online application process, and I had an answer on my advance within a few minutes, from start to finish. Once my advance was approved, Kabbage.com transferred the money into my PayPal account within 10 minutes of starting the application. If I had been heading to an auction, I could have pulled out the cash from an ATM on the way.
Be certain you're still getting your desired profit after the fees are paid off
While I'm too conservative to bid blindly at a storage locker auction, I did use the money to step out of my comfort zone. Of course, I did my completed-item and long-term research to find the sell-through rate and retail prices first. With that information and the Kabbage.com funds, I bought several cases of backpacks for the back-to-school buying rush in July and August. It worked so well, I expect I'll do the same this year.
One new feature Kabbage is rolling out is called a "Zero Balance Account," which will allow sellers to open an account without taking an advance. This makes it a nice "rainy day," or backup funding option. You don't have to use the account until you're ready to purchase.
Make sure the numbers add up
Cash advances are a traditional retail practice. Retailers use short-term advances to buy inventory, then sell all or most of it quickly, and pay off the loan in a very short time. With Kabbage.com the advance period is up to six months. You can pay off the Kabbage advance early and there is no prepayment penalty. The key is doing your math and being confident that your purchase will pay off. Be certain you're still getting your desired profit after the fees are paid off on the advance. Short-term, unsecured loans typically come with higher interest rates, so be sure to factor this into your inventory decisions.
The bottom line is it takes money to make money. In retail, it's important to have access to quick capital whether from a bank line of credit, your vendor giving you longer "dating" (payment terms) on products, or short-term loans. Your job as the reseller is to make sure you're able to take advantage of the funding and turn a profit on it.
Well, that's it for this article. I'm off to view the next episode of "Storage Wars."
If you'd like more information about how to figure profits, make your business more efficient, expand to other venues or have questions about this article, I invite you come check out the resources at www.websellerscircle.com. To find out more about funds available from Kabbage.com, visit the Web site at www.kabbage.com.
To learn how to bid on abandoned storage units, well… watch the TV show, but don't take too many risks, please. Your money is precious and taking uneducated guesses on stuff in dark and dank spaces is one easy way to lose it.