Yesterday we highlighted some advantages of bootstrapping your business. Today lets look at eleven ways you can get started on this
i) Barter: If you can exchange goods and services without compromising on quality then it is in your advantage to do so.
ii) Buy on promotion: If a supplier normally has a special promotion period e.g. Christmas or mid-year, and a purchase is not urgent you can wait and buy during the promotion. However, buy things you see on promotion only if they are budgeted for.
iii) Control spending: Don’t choose expensive furniture or have offices in expensive locations unless this will eventually pay off.
iv) Don’t outsource jobs you can do yourself.
v) Factoring: This is selling your receivables to a factoring company at a discount rate of between 2 and 6 percent. While this can be significant if you turn over the money slowly however if you turn over the money fast it gives you the opportunity of using the same amount of money and say turn it over at 2-6 percent interest or saving it to save 2-6 percent over a 30 day period.
vi) Graduated mortgage payments: allow you to buy facilities e.g. a commercial kitchen over several years. The payments are graduated to accommodate your company’s growth. You can refinance the mortgage when the time is right and since real estate appreciates over time borrow against the properties value.
vii) Installment purchases: allow you to buy equipment and pay in installments. This avails you more working capital for operations.
viii) Leasing: instead of incurring the full cost of purchasing high ticket items, leasing allows you to pay only for what you use or can afford. For example, in construction, you could lease out rollers, graders, etc only on the days you have worked or with imaging services lease video and photographic equipment only on the days you have a function.
Leasing can be further modified to improve your cash position if:
⦁ there is no down payment.
⦁ it is structured to meet seasonal variations e.g. a safari vehicle for hire made cheaper during low season.
⦁ it has a fixed price purchase option available after a period of leasing or having maintenance costs built into the lease.
ix) Letter of credit: Your bank or customers can write you a letter of credit so that suppliers can provide you with the supplies. For example, if you source your products from one major supplier and have a contract from a client that you cannot finance. Your bank or client provides you with a letter of credit. This assures the supplier that you will be able to pay. This works if you already have a history with the bank and or supplier.
x) Renting out space: If you own the property you run your business from, and do not use it all, you can rent out space you are not currently using.
xi) Trade credit: while trade credit cannot be used as a permanent solution it does give you 30, 60, or 90 days to pay. However, if you are to take trade credit from several suppliers your commitments with them may make it difficult to negotiate with new suppliers who may offer better terms than your current suppliers.
All said bootstrapping is about paying close attention to your resources, cutting costs, and keeping interest rates low. There are industry-specific ways you can bootstrap however the above general methods could be done by anyone in almost every industry.
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