Made Here: Credit helps play a role in sustaining growth

Michelle Di Gangi
Posted by Michelle Di Gangi
Small Business Banking

Manufacturing in America is alive and well. In our “Made Here” series, we talk to some of our manufacturing business clients and learn how they’ve flourished in spite of tough odds in recent years.

ST Fabrication Inc., which makes huge metal beams for commercial and industrial facilities, has grown through a combination of smart planning and investing. The business, based in Orting, Washington, near Tacoma, also used access to credit to keep the business strong through good times and during slowdowns.

Jesse Cherian standing in front of a large steel sign with this company's name on it (ST Fabrication).Owner Jesse Cherian explained in our interview how diversification in its projects – both geographic and government/private sector – has also helped the business grow since he acquired it in 2002. His experiences and insights, particularly about learning financial management tactics, may be useful for other business owners.

Q: Has ST Fabrication’s growth been steady, or does it come in spurts? A: In general, because of our geographic diversity, our business been able to weather the storm of the previous ups and downs. When we bought the company in 2002, the business climate in Washington was really bad, but the market in Alaska was pretty good, so we were able to shift our focus over there. When Alaska began to slow down, we shifted our focus to Hawaii and Guam. We learned over the years that it’s never slow everywhere at once.

But that kind of changed, especially in ’13 and ’14, because government contracting stopped across the board.

Was the business well-capitalized to cope with such a downturn?

Let me go back to our first year, when we got a line of credit for $150K. Had we not done that, we would have never been able to sustain the growth that we did in the next year. By our fifth year the line was $500K. Then when we moved into our current facility here, we got it up to a million.

We would not have survived the slowdown [from government sequestration], and even a few growth spurts, had we not had the capitalization when we needed it.

With fabrication, sometimes it might take 12 months on a job to find out really how well that job did. You might get a $1 million job, but it’s not until the end of the job and after everything’s paid that you really know how you did. As a consequence, you need to have some kind of cash buffer to be able to get through that. If you’re in a growth spurt and you’ve got six or seven of those jobs, you have to cash flow that as well. So I’m a believer in having credit lines available.

Can you talk about managing cash flow during periods of growth, the strains it can put on liquidity, and how you’ve managed the challenge?

One of the things that we have had to do is bring in a controller who can talk intelligently to the bank and the underwriters, as well as help us understand what it is that we really need to know. I think most small business owners are really adept at their own technical area of expertise. But the financial side of the business may be an area of weakness. So having good partners on the team to help look at how cash flow affects your ability to grow is really important.

Our annual small business survey has found that growth companies tend to invest in and value technology. Would you agree?

When we bought the company, it was operating with phones and faxes. One of the first things that we did was put in a server and a computer network, and in 2003 we started doing all of our submittals electronically. I made a concerted effort to start educating our customers: “Look, this is going to save you all time and money. Let’s go to electronic submittals.” That’s pretty much become the standard now. As our company has grown, so has our IT infrastructure.

What are a few tips for smart growth you’d give to someone starting in manufacturing?

Don’t grow too fast. You’ve got to have the cash available to sustain the growth, whether that’s your own cash or cash through a line of credit. That’s really important.

Also, have some mentors around you, people in the industry who have done what you’re hoping to do. It’s much easier to learn from others’ mistakes than from your own.

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