Financial bootstrapping: Generate cash with a little ingenuity
Financial bootstrapping is a term used to describe all the different ways companies can generate the cash they need for growth and expansion without turning to outside investors. While the amount of cash available for your use may be limited compared to funds you could obtain through, say, issuance of stock or taking on an angel investor, most bootstrapping plans have the substantial advantage of allowing company owners far more flexibility and control over their own companies.
Owners can finance using personal credit cards or savings, which is probably the most well-known type of financial bootstrapping, however there are other alternatives:
- Sweat equityThis term typically refers to the effort – physical or intellectual – that you, as the owner, invest in your business. For instance, if you’re handy with websites, you could avoid the cost of having a professional build your site by designing it yourself and not take a salary.
- Minimizing accounts receivableEssentially, this involves getting paid as quickly as possible by providing incentives for speedy payment and dropping customers who are late in payment.
- Joint utilizationIn this scenario, you and another business would share resources – for instance, use a combined office space or share equipment or even employees to cut costs.
- Delaying paymentNegotiating with suppliers to postpone payment, opening trade credit lines and leasing equipment are all types of delayed payment that free up available cash.
- Minimizing inventoryInventory can represent cash that could be invested elsewhere. Working with vendors to establish favorable acquisition arrangements and keeping careful track of sales and usage can keep inventory at an optimal level.
- Subsidy financeEssentially, this involves tracking down grants and government funding options and then applying for them.
- Downsize your office or renegotiate your leaseMinimizing office space expenses will free up cash flow for other important expenses.
There are other options – some very creative – that depend largely on your own circumstances. For instance, if you own your office space, you might consider leasing a small portion to another business to raise cash – and possibly initiate a little joint utilization into the bargain. Think outside the box, understand your risks and try to uncover the options that suit your own business and its operations.
For more ideas and advice on how to raise money for your growing business contact our experienced accountants and consultants at Hogg, Shain, & Scheck today.