1. What you have built
Quick recap of where you are, because the numbers only make sense with it. You're credentialed with Catalight and Contra Costa Health Plan, you serve about 60 kids plus one long-term private-pay client, you have about 35 technicians and clinicians, and you have the center in Walnut Creek. September was your best collections month ever.
Demand is not the problem. Catalight has authorized about 4,255 hours a month and you're delivering under a quarter of them. Ten families are waiting for a technician and Contra Costa keeps sending referrals. You also already have the plan to serve them - the Nov 16 build puts 111 new direct hours a week on current staff and lays out six caseloads to hire into, and the new scheduling system is the right tool for it. This proposal funds that plan. It doesn't replace it.
2. Where the cash goes
Here's the cash picture from June to September. You collected about $105k a month and spent about $87k of it on payroll. That left about $18k for everything else - rent, CentralReach, insurance and software (about $19.5k), owner pay, which is currently draws instead of salary (about $13k), and debt service (about $22.5k actually paid, against $31k to $38k owed). That's a gap of about $37k a month, and it got filled with the only money available to a company this young - advances at 116% to 244% effective APR.
The important part: September was positive before debt service. The operating model is close. The advances are what push every month negative. In October the lenders tried to pull about $32k, about $13k cleared, and Catalight receipts dropped to $47k from $79.5k in September. Some of that should come back in November's billing.
3. The utilization gap
You pay for about 2,800 staff hours a month and bill about 1,400. The state rate model assumes a technician spends 62% of paid time in direct service. You're at about 50% company-wide, roughly 60% if you take out office staff. The per-hour economics are fine - Catalight pays $58 to $68, Contra Costa $111 to $122, private pay $90, and a technician costs $27 to $30 loaded. So the fix is volume on the people you already have, not price. Going from 50% to 62% on the same payroll is about 360 more billable hours a month, roughly $29k of revenue. The plan targets 60% by February and 65% by June.
4. What the business needs
I built the number bottom up: pay off the advances, clean up the few things that have to be cleaned up, fund the build until the new hours turn into collections, and keep one payroll in the bank.
| Use of funds | Amount (USD) | Notes |
|---|---|---|
| Retire the four advances (Everest 48,673; Funding Metrics 36,697; MCA Servicing 29,059; Expansion Capital 18,223) | 132,652 | Wired directly to each funder against payoff letters; discounts, if given, add to cushion |
| Fundbox, landlord arrears, private-loan interest | 10,700 | To confirm at closing |
| October payroll taxes and wage statements | 12,000 | Run Oct 1-15 through Gusto as an off-cycle |
| Books, tax and HR cleanup | 12,000 | Outside bookkeeper rebuilds 2026; CPA for the 2025 return and payroll filings |
| Closing uses | 167,400 | About 152,400 with lender discounts |
| Working capital for the build | 55,000 | The first two months' deficit while new hours and hires are paid before they are collected |
| Cash floor | 50,000 | One semi-monthly payroll, held in a payroll funding account |
| Total commitment | 275,000 | Tranche one 215,000 at closing (early December); tranche two 35,000 after the first month-end close; tranche three 25,000 about February 1, both against the milestones in section 9 |
Why not less: $100k gets eaten by the daily debits and the October payroll catch-up and is gone by December, with the lenders still there and the build unfunded. Why not more: past $300k to $325k, more money doesn't improve the odds the plan works, it just extends the runway if it doesn't. If closing slips past the Nov 25 payroll, or October's collections hold through December, the number moves toward the top of that range.
5. How the capital works
One senior secured note from a small lender group that I lead. Debt keeps ownership where it is (apart from the warrant below), it's easy to explain to a co-investor, and it's what an SBA lender will refinance in 2028 once you have clean books and two tax returns. One note, one lien, one set of covenants - one lender instead of five.
| Term | Indicative proposal |
|---|---|
| Instrument | Senior secured note, $275,000 in three tranches; undrawn tranches may be cancelled |
| Rate | 8 percent, interest-only 12 months, then amortizing over 48 months (about $6,700 a month); prepayable without penalty. This is roughly what a bank charges a healthy company. The return on this deal is supposed to come from the business growing, not the coupon |
| Revenue share | 5 percent of gross collections, paid monthly to the lender group from month 4 for the full 60 months. In any month the company's cash is below one payroll ($50,000) the payment accrues instead of being paid, so the share never forces a cash squeeze |
| Warrant | The lender group receives a warrant for 10 percent of the company's membership interests, fully diluted, exercisable at a nominal price. It pays on a sale, a change of control or a refinancing that repays the note, and carries a put at the fifth anniversary at an agreed formula (a multiple of trailing twelve-month EBITDA) if none of those has occurred. Standard protections: anti-dilution, tag-along on any sale by the owners, information rights, and consent on transactions with related parties. Until exercised it carries no vote and no tax allocation; the owners keep 100 percent of the units |
| Security | First-position lien after UCC-3 terminations from the four funders and Fundbox; personal guarantees from both owners; releases of Pamela's existing guarantees at closing |
| Governance | Lender consent over new debt, liens, related-party payments, owner compensation, headcount above plan and payer-contract changes; a board-observer seat; read-only access to bank, Gusto, QuickBooks and CentralReach; monthly financials from an independent bookkeeper |
| Cash controls | One operating and one payroll account; two authorizations above $5,000; all receipts into the company account; payroll only through Gusto; owners on fixed salary; personal expenses off the company account from month one |
6. Twelve-month plan
Volume comes from the November schedule, the Nov 16 build and the six hire packs. Revenue is at your October realized rates. Labor is Gusto's loaded cost per paid hour. Everything else is from the bank statements. Month 1 is the first full month after closing, starting from about zero in the bank plus the $48k of tranche one left after payoffs and cleanup. Collections lag billing (55% in the month, the rest the next month), so the first two months are negative - you're paying for new hours and new hires before you collect on them. That's what the working-capital tranches are for.
| Base case (USD thousands) | M1 | M2 | M3 | M4 | M5 | M6 | M8 | M10 | M12 |
|---|---|---|---|---|---|---|---|---|---|
| Billable hours | 1,495 | 2,115 | 2,215 | 2,475 | 2,575 | 2,675 | 2,835 | 2,955 | 3,035 |
| Collections | 111 | 146 | 170 | 184 | 197 | 205 | 218 | 228 | 235 |
| Payroll | 97 | 128 | 127 | 134 | 135 | 138 | 142 | 148 | 152 |
| All other outflows | 43 | 43 | 41 | 41 | 42 | 42 | 43 | 43 | 44 |
| Net operating cash | -29 | -25 | +2 | +9 | +20 | +25 | +33 | +37 | +39 |
| Tranche released | 48 | 35 | 25 | ||||||
| Company cash, month end | 17 | 27 | 29 | 63 | 83 | 108 | 171 | 244 | 322 |
Scenarios, all before note interest and the revenue share. Base case: about $215k of operating cash over 12 months and one payroll of cushion by month 4. If the private-pay client leaves in month 4: about $148k, survivable once the build has landed. Downside (70% of the build lands, utilization stalls at 58%): about -$57k, solvent with all three tranches but flat. That's the case the milestones are there to catch early, and where the revenue-share deferral kicks in. Breakeven before the revenue share is about 1,550 to 1,750 billable hours a month at 60% utilization and 1,350 to 1,480 at 65%. With the revenue share it's about 1,800 to 2,050 at 60% and 1,550 to 1,700 at 65%, which the plan hits in month 2. Assumptions: utilization 50 to 65 percent by month 7; blended rate $81 drifting to $78; loaded labor $32.60 per paid hour; other costs $20,000 to $23,500; owner salaries $11,000 including employer tax; $6,500 fixed for clinical-director and admin time; note interest (about $1,850 a month) and the revenue share (about $9,000 to $12,000 a month from month 4) are not deducted in the table; with both, the base case still generates roughly $95,000 of cash in year one and ends it with about $200,000 in the bank.
7. The first 90 days
- Day one, cash: one operating and one payroll funding account at a new bank; every receipt into it; two authorizations above $5,000. Owners on $5,000 a month each through Gusto to start, reviewed with the lender group once the company is cash-positive; personal autopays off the company account within the month. Payroll only through Gusto, including Oct 1-15 as an off-cycle. A one-page 13-week forecast every Friday.
- 30 days, finance: an ABA-experienced bookkeeper rebuilds January to October 2026 (loan proceeds out of revenue, lender debits out of payroll, deposits by payer, owner items to distributions), then closes by the 15th each month, while Hernan leads forecasting, the lender payoffs and the investor process. 2025 return filed. Claims out within 48 hours; DSO under 15 for Catalight and CCHP. A written service agreement with the private-pay client. A weekly KPI pack: cash, billable hours by technician and payer, delivered against authorized, cancellations, claims, AR, headcount.
- 90 days, utilization: execute the Nov 16 build and re-run it every two weeks in the new scheduling system; minimum 20 direct hours a week per technician within 30 days of credentialing; caseloads clustered by geography; a 24-hour cancellation policy with a backfill list; bill supervision (97155) and parent training (97156) already delivered; credentialing in ten business days; clinical director half billable; a second BCBA by month 4.
8. Growth
Fill the staff you already pay
- The Nov 16 build: 111 direct hours a week, about $30,700 a month at run rate.
- Four incoming technicians into four hire packs; post the other two.
- Resolve the five "verify or hold" cases.
Hire into demand
- Hire only against named authorized hours, two technicians a month, in 20-to-27-hour packs.
- Second BCBA; parent-training track for every client.
- CCHP: serve referrals in hand; confirm after-hours billing rules in writing.
The center and more payers
- Morning and after-school cohorts at the Walnut Creek center: 300 to 400 billable hours a month with no travel.
- Regional Center vendorization, one or two commercial contracts, a school contract; no payer above half of revenue by end of 2027.
Not until then: no second site, no hiring ahead of credentialing or supervision capacity, and no new debt of any kind while the note is outstanding.
9. Milestones and closing
| Release | Milestones |
|---|---|
| Tranche two, $35,000, after the first month-end close | First monthly financials; no returned debits; no personal items on the account; at least 80 of the build's new hours a week delivered; three of four incoming technicians billing; billable hours at least 1,450; private-pay client current |
| Tranche three, $25,000, about month 4 | Months 2 and 3 financials; billable hours 1,900 then 2,000; utilization at least 56 percent; month 3 cash flow positive or within $10,000; 2025 return filed; Catalight delivered-vs-authorized at least 40 percent; second BCBA hired or in process |
What I need to close (about 3 to 4 weeks from requesting the payoff letters, so early December): fresh payoff letters from the four funders with UCC-3 terminations and guaranty releases on payment; a UCC search; October claims and scheduled-versus-delivered reports from CentralReach, and weekly Catalight billed hours from here on; a short accounting of the October payroll paid outside the company account and the Oct 1-15 Gusto off-cycle scheduled; private loans documented and subordinated; the private-pay client's service structure confirmed in writing; landlord statement; bookkeeper and CPA engaged; both owners' signatures on the note, guarantees, amended operating agreement and account controls; read-only system access.
The short version. This is a good business with the wrong financing. You have authorized demand you can't serve yet, a team that delivers, a real plan to raise utilization, and a cost structure that works at normal productivity. What it needs is $275k of secured capital to pay off the advances and fund the build, cash controls that make every payroll certain, and about four months of tight execution. Base case, you're making $25k to $35k a month by late 2027, you refinance with an SBA loan in 2028, and you own the growth.
Sources
- Company documents: Wells Fargo statements May to November 2026; Gusto registers July to October; Hernan Vargas's reconciliation workbooks May to September; payoff letters of Nov 4 and the funding agreements; the Nov 16 schedule and hire packs; revenue per employee; projections workbook; October P&L; Nov 5 answers; the Nov 10 call.
- Benchmarks: California DDS rate models (Jan 2026) for technician productivity; Medi-Cal SPA 25-0028 proposed rates; SBA SOP 50 10 on refinancing advances; L.E.K. Consulting and Raven Health on ABA operating metrics.
- All figures rounded; estimates are labeled as such in the text.