Faraday Future has plans to overtake Tesla Motors as the
first name in electric cars. But since presenting their impressive new car –
the FF19 – at CES 2017
the company has announced it has been forced to scale back its plans.
Yes, Faraday faces challenges because it is developing
new technology – and because the auto industry is notoriously difficult to
break into – but, like many small and medium-sized businesses, its problems
with cash flow are arguably the biggest challenge.
Over Investment
Faraday’s cash flow problems may have begun with their
parent company, LeEco Group, who admitted to over-investing
in various projects. LeEco Group is a sprawling umbrella holding company that
found itself expanding too quickly.
When to expand is a tough question for small and
medium-sized businesses. Do it too slowly and you risk missing the opportunity
altogether, but too quickly and you could easily over-extend yourself and flop.
In Faraday’s case, their parent company LeEco Group expanded
too fast and was unable to raise sufficient funds to bolster its cash flow,
and its various subsidiaries, including Faraday, were affected.
Over Estimating Ability
In April 2016 Faraday began work on an enormous factory
in the Nevada desert, only to halt
work in October. This delay in construction resulted in rumours of
financial difficulties.
Executives
explained these difficulties, saying Faraday had to carefully manage its
resources between the different projects that it has on the go. Specifically,
Faraday was attempting to build its brand by focusing more on the marketing and
sales. But it was too little, too late.
Scaling Back
Presumably Faraday was diverting resources away from
construction and towards the production of their CES presentation. Since then
it seems they have reduced
their plans for a 3 million square foot factory, settling for only 650 000
square feet instead. And at that factory they will only produce two different car
models, rather than following their original plan of seven.
Unpaid Bills
One of the most concerning signs of cash flow issues are
allegations of unpaid bills. Faraday has been the subject
of legal proceedings by The Mill Group, who were contracted to create a
visual presentation. In the past Faraday, has also encountered issues in
compensating suppliers, and its parent company has been accused of not
fulfilling their financial obligations. If nothing else this demonstrates how a
lack of cash flow can create new problems for a business, and potentially
damage their credibility.
No matter the size of your company, not having the cash
available to pay vendors, consultants, and employees is a huge warning sign
that your cash flow is out of control. If your small or medium sized business
is struggling to find the cash to pay your debts, then don’t risk jeopardizing
your credibility. Call J D Factors for help.
Don’t Be Afraid to
Take a New Approach
Scaling back is often a good thing. For Faraday, the
company has revaluated in the face of its cash flow struggles and is working to
stretch its cash so it can deliver a product – even if it does not fulfill
their initial ambition. This strategy is like Tesla’s approach of selling more
expensive cars first while continuing to work to produce more affordable
models.
Although Faraday is a large company, their challenges demonstrate
the importance of carefully managing cash flow for businesses of all sizes. Whether
your company is small or large, poor cash flow often causes unnecessary
difficulties and can even jeopardize your business.
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