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2005 Guide to Bootstrapping: Back to 'Bootstrapping'!
(or Buddy, Can You Spare Some Cash?)
Barry Moltz

Barry J. Moltz
Co-Founder – Prairie Angels
Advisory Board Member - Angel Capital Association

Chicago, IL

The New Economy Never really was new. The paradigm has shifted for starting businesses from "here's my business plan, where is my money?" to "here is my product and my customers, can you help me with some money to expand my business?"

These days, in order to get any funding outside of the love money that your family and friends gave you, the entrepreneur needs to show results first, ask for money later. Before the 1990's, entrepreneurs relied on bootstrapping. In other words, get creative and do more with less money and resources. A few things that will help to remember:

Cash is not only King...it's Queen, Jack and all the other face cards in the deck. Prepare a cash flow statement and update it monthly. This is the only way to know your burn rate. If you run out of cash, your business is gone. This is probably the best business skill you can learn. If you don't know how to produce a cash flow statement, find a software program that will (www.businessplanpro.com).

How do you conserve cash? Hire no employees before their time. Focus on only hiring people that can produce revenue or directly support customers. If you have inventory, keep it low (high turns). Do as much business as possible on credit cards with your customers. Collect your receivables on time. Negotiate extended terms with your vendors, but then pay on time.

Other Sources of Cash

Besides less receivables and inventory, consider the following less tapped sources of cash. Unfortunately, in my business experience I have used all of these:

Don't pay yourself a salary: It doesn't make sense to put more money that you have already been taxed on into the business if it needs it. Just cut your salary and you save yourself and the business taxes.

Borrow from your IRA account: You can pay it back in 60 days at no penalty.

Borrow from the cash value of your life insurance policy: You pay the interest to yourself.

Take out a home equity loan.

Take a cash advance on your credit cards

Ask your employees to loan the company at a premium rate plus a few options.

Learn to do it yourself. Don't hire anyone for a task you have the skill do yourself. If you don't have the skill, learn it or hire a person who will do an excellent job so you can leverage your time on the tasks at the business you do extremely well.

Form Strategic Alliances. Find other business that you can work with that can help bring you customers or can perform some of the functions your company needs that can be performed by them. Companies that have billions in sales do not typically buy from start ups. Find the right size company that will.

Products and Customers. Get any part of your product built and then find your first customers to use and pay for it. This will not only prove out your concept to future investors, it brings much needed cash in the door.

Remember, there are three kinds of risk: Technical, Marketing and Execution. Prove to Angels you can conquer all three by showing results. No one can argue with a product that is bought by customers!

Customers are your best offense!


Barry is author of "You Need to Be A Little Crazy:
The Truth About Starting and Growing Your Business"
.

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