Imagine for a moment that you make and distribute a killer BBQ sauce.
Your friends love it. Their friends love it. A Top Chef winner posted about it on Instagram. Then a wholesaler representing the biggest grocery store in your area calls – they want to order thousands of cases and see how it sells to their customers. Huge deal. Big.
Until you have to make it happen.
You’re going to need materials – all that stuff that’s going in your sauce. A co-packer, or contract packer, to put the sauce into bottles. Oh yeah, the bottles cost money too. Shipping, to get your sauce from the co-packer to a distributor’s warehouse. The distributor gets a cut, maybe 15%. And that’s all before it makes it to the store, where they’ll add extra margin to their cost from you, and hopefully, at the end of all of that, someone will buy it and put it on their smoked chicken.
You’ve gotta pay for it all somehow, and since that invoice you gave the wholesaler won’t get paid until 30 to 45 days after the product gets delivered, you’re going to need capital.