Kabbage Co-founder Kathryn Petralia Discusses Small Business Recovery and Maximizing Cashflow

As small businesses continue to recover from the effects of the COVID-19 pandemic, Kabbage, an Atlanta FinTech disruptor, has collected new data by tracking small business recovery and plans to continue doing so over the next year. On today’s show, we’re pleased to welcome Kathryn Petralia, Co-Founder of Kabbage.

Transcription:

Jim Fitzpatrick:
Thank you so much for joining us, Kathryn.

Kathryn Petralia:
Thank you so much for having me.

Jim Fitzpatrick:
Sure. So you have built an incredible company, congratulations to you on that. Who in the small business world doesn’t know the name Kabbage, so I know you’re doing great work for many small businesses out there. On behalf of them, thank you for that. Let me talk to you about some of your findings here. As mentioned, you guys are tracking the small business recovery. What are you finding?

Kathryn Petralia:
What we’re finding is that businesses are beginning to be fully open again. We were really excited to see that 85% of the businesses we surveyed said they were fully open, which was a 51% increase from the last report, which is great news.

Jim Fitzpatrick:
Yeah, that really is, no question about it. And it seems to be, from what I’m hearing from people that I talk to on the show, it’s a great time to start a small business, right?

Kathryn Petralia:
Absolutely. Well, 2020 had record new business starts. So we know that 2021 is likely to hold more of the same.

Jim Fitzpatrick:
Sure. You can’t keep a good entrepreneur down, right? They’ll build pivot and start selling gowns and masks if they have to, but they’re going to make money one way or another, right?

Kathryn Petralia:
Absolutely. The entrepreneurial spirit in Americans is incredibly strong.

Jim Fitzpatrick:
Yeah. For sure. What advice do you have for small businesses that are still struggling to bounce back from the pandemic?

Kathryn Petralia:
Well, it’s interesting, we saw sort of, and I’m sure everybody’s talked about this already, the K-shaped recovery, this idea that a bunch of businesses did really well, which we saw in our data and then a bunch of them didn’t. So it really depended somewhat on geography, but largely on the type of customers they serve. So if you are serving an urban, commuting workforce customer base, then that’s really hard right now. Although I think things are about to improve for those folks too, as people get begin to go back to work. And certainly in hospitality, that’s been a rough time as well. But then tons, anything related to the home, whether it’s design or renovations or furniture, whatever it is, those companies are just going gangbusters and they’re likely to continue to.

Jim Fitzpatrick:
Yeah, there’s no question. It seems like there’s a shortage of old goods out there, materials and such, and businesses could do even better than they’re doing, if they could just get their hands on the materials that they need, which is crazy, right?

Kathryn Petralia:
That’s a big challenge too. But to your question about, what can businesses do that are still struggling? I think what’s really important is to think about other options that your business may have. And a lot of businesses have already been doing this, but what we found is that a lot of retail customers, for example, they’ve begun selling online and they never did that before. And they turned what was a local market into a global market. And they’ve turned to social media, which is another great option to show people what they know to become influencers in this space and define new customers and to getting credibility. So those are some tools that have worked really well for a lot of businesses.

Jim Fitzpatrick:
Sure, sure. So what should small business owners keep in mind as they shift to more digital operations and how can they stay agile in this evolving landscape?

Kathryn Petralia:
Well, I think it’s important if it’s something that’s not natural for a business to operate digitally, get some help, ask for someone you know in your family or a friend or a neighbor, to give you the support and guidance you need, to get the tools up and running, so you can select the right tools for your business. Whether it’s financial services tools, or whether it’s e-commerce tools, or even deciding if you’re a restaurant, whether you’re going to use one food delivery company versus another, or even both. So I think it’s really important to ask people you know, who probably have expertise that you don’t. If the idea of it is so burdensome and a little scary, there’s a lot of people out there, right around the corner from you who probably can help.

Jim Fitzpatrick:
Sure, sure. Talking about getting into some trouble, the small business owners are usually, trying to make ends meet, especially during these times. What are some of the top cashflow mistakes that small businesses make?

Kathryn Petralia:
Well, I think one general mistake that business owners make is they often don’t separate their personal and business finances. And that’s something that’s really important to do, for a variety of reasons. Part of it is when your business grows up a little bit, and then you go to a bank or to another company to get another service from them, they may not be sure you’re really a business, because you haven’t separated those accounts, for example.

Kathryn Petralia:
Also sometimes it’s hard to know when should you be taking money home for groceries, and when should you be leaving it in the business, unless you give yourself a salary. So there were actually a lot of business owners during the pandemic who were not eligible for PPP because they had never paid themselves as an employee. And so it’s really important to get that set up, and there are a lot of companies out there that can help you do something, just an accountant to help you set yourself up as an employee, or at least as a 1099 employee, so that you can demonstrate what your payroll is.

Jim Fitzpatrick:
That’s right. So many business owners and entrepreneurs, when they start out, they say, “Well, I don’t have that much business coming in, that much cash coming in. And I’ll worry about that one day,” and one day never gets here and you realize you’ve been running the business like that for four or five years. And everything is kind of put together, and to your point, it does make getting loans difficult or selling the business one day or turning it over to somebody to operate the business as a manager, right?

Kathryn Petralia:
And the other downside of, if its credit, if you’re using your personal credit cards to run your business, then you may seem to… You may have a lower credit score unnecessarily because it appears that you are more highly utilizing your credit lines than you really are. And so it’s important again, to get a business loan, not a consumer loan, when you’re using working capital to run your business. And it’s also important to choose the right type of capital if you’re going to do that. So, putting your payroll on a credit card is probably not the best use of those proceeds or even for most working capital loans. I think what’s important is to imagine what you’re investing it in. Most small business owners who borrow, are investing in growth. So whether it’s materials for a new job or whether it’s inventory for a store, or whether it’s software as a service to help you get your digital business up and running, these are all things that are helping your business grow.

Jim Fitzpatrick:
Sure, sure. What are some other tips for maximizing cash flow?

Kathryn Petralia:
Well, I think exploring your options, understanding what are the different types of products that are available. When it comes to lending, for example, there’s everything from equipment leasing that’s available, to installment loans, to card products, you name it. There are as many small business lending products as I have fingers and toes. So it’s important to get out there and figure out how you’re using the funds and what type of product makes the most sense based on how long you need the funds and how you’re going to deploy them. And also it’s important is it should be a revenue generating asset. You should be able to calculate what kind of return you’re going to get from the investment of borrowing. And if you can’t do that, then you might want to go back to the back of the envelope and work a little harder to figure that out.

Jim Fitzpatrick:
Yeah, for sure. One of the challenges that many small businesses now have is getting people back to work and finding not just employees, but the right employees to work for your business. It seems there’s a couple of obstacles out there such as a very generous unemployment program that we’re faced with. And it seems like some people don’t want to come back to work until that runs out. Any advice that you’ve got for these businesses out there on that?

Kathryn Petralia:
Well, it’s interesting. I think that’s only part of the equation. I think there’s also people who don’t have childcare, who don’t have elder parent care or any other dependent care. So they can’t go back to work because they’re still taking care of their family because everything hasn’t fully reopened. And I think that’s an important distinction and some people simply don’t feel safe if they’re going into a frontline environment where they’re going to be closely interacting with other human beings. They may feel unsafe, especially if they’re not vaccinated or if the people they’re around aren’t vaccinated.

Jim Fitzpatrick:
Yeah, that’s right. That’s right. Let’s switch gears a little bit. What are some of the emerging trends that you’re starting to see in the digital payments landscape?

Kathryn Petralia:
Well, obviously digital has grown remarkably from a money movement perspective over the last 15 months. And so people, cash is all but gone for all practical purposes. And so a lot of businesses are beginning to accept cards when they didn’t before. They’re beginning to accept payments on their mobile devices when they didn’t before. And it’s funny, I had some electrical work done at my house and I was going to pay the electrician and I got an email and I go, “Where can I log in to pay my bill?” And they said, “Oh yeah, we’re working on that. You need to send us a check.” But the delay between them and money was probably two or three weeks because I couldn’t make my payment digitally. And so I think it’s important to recognize that it’s not just about making it easier for your customers, it’s about getting access to the money sooner.

Jim Fitzpatrick:
That’s right. That’s right. And that can be all the difference in the world when you’re trying to make payroll the next day. And you’ve got a few thousand dollars or more in accounts receivables. And those people like you, have got to sit down and write a check out, not only is it inconvenient, but you’re just going to wait on that money. Huge mistake, right?

Kathryn Petralia:
Yes. And business payments are increasingly digital where they often were not. So I think there’s lots of different ways and that’s actually a really interesting way for folks to get access to capital sometimes is through even just payment terms with your vendors. Figuring out how to extend your payment terms from 30 to 60 days, could give you access to the capital that you need, and then you don’t have to search for another source of capital.

Jim Fitzpatrick:
Sure, sure. So I would be remiss if I didn’t ask you, what are some of the things that you guys are working on at Kabbage now that you’ll be rolling out?

Kathryn Petralia:
Thanks for asking. We are really focused on helping our customers manage cashflow. We built our business on lending. That was our flagship product for a decade. And we began building some other tools and products from payment processing, which we talked about earlier. You can now open up a checking account at kabbage.com and you can do it online in just a few minutes. And it’s pretty easy. We’ve got a generous APY of 1.1% and no fees. So it’s a great time to open up a business checking account if you haven’t done it already. And so the other products that we have are around bill pay and of course, American Express acquired us last year and they’re an amazing, hard business. So we’re really excited about all the offerings that we can bring to small businesses together.

Jim Fitzpatrick:
That’s fantastic. I know you’ve been doing so much good things for small business owners, not just in Atlanta, but throughout the country. So I want to thank you very much for joining us here on the show. Kathryn Petralia, who is the President and Co-Founder of Kabbage. Thank you so much. For those of you small business owners that find sometimes you need an extra little cash to get more equipment or to make payroll or whatever the case might be, Kabbage is the answer. It’s a phenomenal company. So Kathryn, thank you very much, appreciate it.

Kathryn Petralia:
Thank you.


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