Christian Arno is the founder of the Edinburgh-based translation agency Lingo24, and has spent the past 15 years running and growing the business.
They work with clients ranging from The Economist to the Adidas Group, and as a growing business are all too familiar with the typical cashflow issues that can be associated with taking on larger clients.
Tell us a bit about your background and how you came to start Lingo24?
A child of Aberdeen’s oil and gas industry, I’d always enjoyed learning foreign languages. While studying abroad in Italy, I set up an online student translation service called Tgv24.com. The success of that business made me feel there was an opportunity to build a bigger translation service using the latest developments in technology to improve scalability and reliability. And that’s what we’ve done! Now, however, the focus is on enterprise level accounts and making sure our translation technology can deliver our clients as much benefit as possible.
How did you go about raising start-up capital for your business? Was it harder or easier than you expected to raise your seed money?
On that year abroad, I became fascinated by the Stockmarket. A friend and I both invested £500 in a share called KMS, which at one point had multiplied by over a hundred times! As ever, you never get out at the right time, but I did make about £15k from that speculative investment, which was essentially by start-up capital for Lingo24.
How long did it take for your business to start making revenue? How did you feel when it did?
We made revenue from day one, and I still remember the buzz from persuading someone I’d never met to trust me with something as important as translation for business. It felt great as we learnt about SEO and were able to build a machine for generating new sales opportunities – that was when I realised Lingo24 was a scalable business.
When the business started to grow, how was it financed? How did you decide what methods/types of finance to use and what were the pro’s and cons?
I was very nervous about raising external investment or getting into financial products with the banks which I didn’t fully understand. I also wanted us to keep strong financial discipline, and as much equity as possible for shareholders. So for most of our history, we have financed the business through profitable trading. In recent years, we have raised external investment, and used an overdraft and invoice financing to grow our business.
In terms of pros and cons, here goes:
- External investment: Positive – has brought real expertise and credibility into the business; negative – dilution of existing shareholders.
- Overdraft: Positive – fairly flexible short term buffer for us.
- Invoice finance: Positive – scales with our business, works in multiple currencies and fits with the profile of businesses we work with; negative – not all invoices can be used, and there can be some caps by currency which mean that the full limit can’t always be used.
Tell us about one scary time regarding cashflow. How did it happen, and how did you get through it?
In the early years of Lingo24, we were overly reliant on our search engine rankings. When a new algorithm was launched, our positioning was damaged and we suffered a downturn in business. This was a catalyst for needing to let a couple of people leave the business. It did teach me early on the importance of not having your eggs all in one basket. And so the next year we began to build a sales team to reduce our reliance on search marketing.
What is the best piece of advice about cashflow that you have been given, and by whom?
Cash really is king, and I have had friends who’ve lost control of profitable businesses because they didn’t realise this. My advice is to plan on this basis, and make sure you have all the tools, like Fluidly, in place to make sure you are managing cash proactively. The best piece of advice I remember on preserving cash when in trouble was from my best friend’s Dad, whose somewhat chilling advice was to cut earlier and deeper than you thought necessary. It might sound cruel, but making sure a business survives for the benefit of all stakeholders is your main responsibility as a leader. Thankfully in Lingo24’s history this hasn’t happened too often, but we have had a few challenging periods!
How do you manage cashflow today?
We have a great finance team based here in our Edinburgh HQ and in our Romanian office. They’ve improved our cashflow immeasurably over the last couple of users, including using Fluidly to collect some stubborn and exotic debts from around the world.
Are you trying to grow? If so, how do you envisage financing this growth and managing future cashflows?
We are absolutely growth focused, and our core business is growing at 20%+ per year. That said, we are increasingly getting into bigger accounts and projects, which can tie up cash for longer. Our invoice finance facility will grow to support us, but we may well look to raise funds in other ways both to address growing working capital needs and to help us invest more in the business. Advances in our technology are making our proposition ever more compelling, and we need to sell and market more and more internationally.
In terms of managing future cashflows, I’d envisage more investment in stronger finance systems and technology like Fluidly to allow our teams to be more efficient.
What three tips can you give other SMEs to better manage their cashflow?
- Ask, and if necessary incentivise, larger accounts to pay upfront or quicker than usual. For small accounts, see if you could make upfront payment the default.
- Look at your three biggest costs and ask yourself under what circumstances you could reduce each of these by 1, 2,or 5%. If not too impactful, do it! That profitability boost will boost your cash position quickly and sustainably.
- Embrace technology and outsourcing early on – keeping you headcount as low as possible in the early days will help you maintain positive cashflow.