Let’s be real…in the game of resell, money is an extremely big and critical factor to success, well for the most part to say the least. You need capital to buy inventory, you need capital to pay the bills and more importantly sometimes you can’t accurately predict when capital is needed and at what magnitude. Sometimes even if you plan it so well and have $10-20k set aside as free flow cash for contingency, that capital isn’t enough. Certainly that depends how big your resell business is and for some that are starting out that may be more than enough, but when you are trying scale and grow a business, you just might need a little bit more cash.
A lot of people like me don’t have the luxury to ask daddy and mommy for another 20k to “invest” in sneakers…well atleast if you did that conversation may be a little easier today compared to the past because sneakers has become much more mainstream and at least you’re not getting the lecture of why are you buying stupid things like sneakers. But here’s the double edge sword of having too much cash. In finance we call it a cash drag on a portfolio because having too much cash means you’re not investing that cash and you are technically missing out in terms of opportunity cost. It’s a drag on your portfolio if it is going up, which in the most cases that is the likely scenario in the game of sneakers if you are doing it right.
When I first started off I pretty much maxed out my own personal line of credit of $50,000 and used all the interest free credit cards I could possibly get. I asked friends and family to borrow $10,000 each – whatever I can scrap together. I remember for 3 years I kept taking advantage of the MBNA 12 month interest free cash advance. It was the smartest move because you’re essentially getting money at a low low rate compared to the market. Why I say “low” is because even though interest on the term was 0% they get you by paying a 1% transfer fee up front, which in theory is your borrow rate. How i saw it was 1% was definitely better than 4% on the personal line. That $60-70K upfront really was a game changer because I took advantage of the market at that time. I mean opportunities don’t always present itself, so when it does present itself, you got to do whatever it takes to seize it. I personally only had about $10k of my own money in my personal bank account at the time and I knew the market for certain shoes was way undervalued, so in order to buy as much as I can, I needed money fast – and the more the merrier. Looking back, if I didn’t max out these loans, Netmag wouldn’t be here today and I probably wouldn’t have the business partnerships/connections I have today. I even sold all my stocks even though I lost a ton of money on gold, I ate the loss and trust me it was well worth it in hindsight.
The fact that I always had a balance on my line of credit all these years simply means there were just too many sneaker buying opportunists out there that outweighed the 4% annual interest I’m paying, which also meant I could use MORE money to take advantage of it. I always try to operate within my comfortable ability because at the end of the day, I don’t want to take in too much money I can’t personally handle, but about 2 years ago that completely changed. Business opportunities started to present itself and I knew I needed to act on it for the better future of Netmag but I was running into a problem. I didn’t have enough money to meet the supply. At first I started to off load some of my in the money sneakers (aka sneakers that I have earned quite a bit of profit) in my inventory to make ends meet, but I soon found that it wasn’t the smartest decision because I was still bullish on some of those sneakers. ie. I had to sell off a lot of my supreme dunks and What the Dunks because at the time I really needed the money. Looking back if I had access to more cash I would have still kept all of them and I would be MUCH better off because those What the Dunks is now worth 3-4x of what I sold them at. But I had to do what I had to do to make ends meet.
As business grew, required capital grew as well. I knew selling off my good assets wasn’t a viable long term solution so I needed to look at alternative means to meet the new influx of supply. There are still a lot of shoes I have that I think would go up in value that I don’t want to sell today, but I needed another solution which luckily only took one meeting with the bank that made the material difference. After reviewing my financials for the past 3 years, they granted me a $300,000 line in which I only pay interest only when i deployed the capital. This flexibility gave me a lot of buying power and advantages in the market dominated by cash. I’m now able to play around with existing inventory and not having to force sell to meet cash flow requirements. Of course, I still have to be very disciplined with my business operations…I simply can’t hold EVERYTHING, but now I can force myself to have a strict plan to what is worth keeping and what is not and at the same time intake the necessary shoes that I think will go up in value in numbers. Often times I can’t control what comes downs the pipe by Nike. Ie. a few months ago they decided to drop the Fearless Pack of Jordan 1 mids…man, that was a tough month because releases just came every other day. If I didn’t have that cash flexibility I would have missed out on a lot of the shoes.
The takeaway from this not to tell you borrow recklessly, but if you are serious about re-selling sneakers, it can very well be a long term viable business. What that means is you have to start doing things the right way. This means, do all the necessary paper work – register your business, file for taxes and more importantly pay your taxes. At that point you no longer have to worry about hiding cash under your mattress, you no longer have to avoid depositing large sums of cash into your bank account or dealing with large transactions. Yes, your margin may be a bit lower as you are now paying tax, BUT don’t forget you can also offset a lot of expenses. More importantly, if you want to extend credit at the bank, you most certainly need business track record in the form of a balance sheet and income statement and 1-3 years of track record. I’m glad I did all the ground works early on and even though I was only about $50,000 a year when I first started off, I did the right thing and filed taxes. Had I didn’t I would have been stuck with a $50-$60k line of credit that would have prevented me in expanding the business.