Bootstrapping – how to make a little go a long way
There are plenty of stories about entrepreneurs who barter and use alternative means to build their businesses. What I would like to highlight is that you can think outside the box when struggling with ways to fund your venture.
Principles of Bootstrapping
For me, it is about accepting you can't have a champagne lifestyle with a cider budget. You need to plan out your cash flow and watch the pennies. It is amazing how many small costs crop up. Company registration fees, trademarking, cost of IP etc.
You will have to prioritise the costs which are due and balance discretionary spend. Did you really need the fancy set of stationary or to fly business class? Who are you trying to impress? Any reasonable business person would be worried if you were spending too much. Investors are becoming more prudent. So show you are responsible with money.
Some ideas to consider:
1. If you can get it for free, do- what I’m getting at here is that you do not have to pay for everything. Think about what you can get for free e.g. office space, plenty of venues have free WIFI which you can work from, e.g. libraries, co-working spaces etc. Also, never be afraid to negotiate sponsorship to help support events. For example, if organising a launch event, ask around for free or reduced cost food and drink and promise the vendor free PR. Also websites like Freecycle feature companies trying to dispose of office equipment, stationery, raw materials etc. which you could use.
2. Share resources – There is a risk to assume that you have to employ bookkeepers, admin staff etc.. If you do not need a person full time and in particular for only a day or two a week, try and network with other small companies to pool resources. This goes for physical assets as well.
3. Barter- can you trade experience? Do you have a service that you can provide in exchange for web administration, affordable printing even a fresh pair of eyes when developing your investor deck?
4. Incubators and accelerator programme- There are some great one out there, but you need to make sure that its suits your business, a food company would not necessarily get much out of a tech-based accelerator. Also, read the small print, you may think you are getting a 50k investment in cash. Instead, some incubators offer ‘services in lieu’ of that cash. Could you have gotten that advice elsewhere for less and without giving away a part of your company?
5. Negotiation and haggle – before you approach a supplier, research, see what they charge and do not go in blind, they will quote you more. Do not be afraid to talk to other customers of that supplier to make sure you are getting value for money. Also, be flexible, if you wanted to do an event on a Thursday or Friday night, it’s going to cost more. Instead, do something on a Tuesday. Same applies to other services that have off-peak options, e.g. try and travel to meetings during the day and not first thing in the morning.
6. Watching the pennies – time to be frugal, shop around and unless you really need something, do not buy it, even if you think its tax deductible, you only pay tax on income that is generated!. can you lease IT equipment etc.
7. Grants – many local authorities and government agencies offer match funding and grants. Search your local area and talk to agencies that cater to your business area. Look out for innovation vouchers and these can vary throughout the UK and Ireland. Also, check newspapers and media outlets for advertised schemes such as Virgins Voom's campaign. Find out who your local MP is and see what they can do for you.
8. Shop around for your bank- many banks are offering 18 months free banking for SME’s and other offers. Make sure your bank manager knows your business and works for you.
9. Crowd funding – You do need a good personal story to appeal to people, but a great way to raise small amounts to develop your product/service. Some fear this method due to negative reputations for their brand, but work out the pro’s and con’s for your business.
10. Get deposits – If you are being commissioned to make something, do not be afraid to get a deposit that will cover at the least, your costs. So even if the order falls through, you are not out of pocket. That’s how Zara was born. The founder had a manufacturing company. An order fell through and instead of trying to sell to another retailer, they set up their own shop and look at them now.
11. Alternative ways to make money - If you have a company website, look into monetising your sites. This is not just about Google ads. Can you advertise complementing brands? Can you translate your experience into speaking engagements? Can you look at other ways to generate cash for your business, e.g. food businesses, can you do cooking experience days? Think about alternative ways to trade and collaborate with other companies.
12. Budgeting and save- you do not need an elaborate spreadsheet, but make sure you create a budget and ring-fence money to necessities. If you have an unexpected sales day, do not feel the need to 'treat yourself' try and save this month to reinvest. Try and save up a contingencies fund.
Finally, when bootstrapping is no longer feasible, you probably need a cash injection. That’s when you may have to give up part of your company or get a loan. Assess the balance, between your own savings, other income, overdrafts and giving away equity. There are plenty of firms and organisations who will provide free advice on types of equity, how to value your company etc. Ask yourself, what do you need from an investor and how much of your business do you want to give away?
Angels are great for adding value in terms of experience and also tend to give more time before expecting a return on their investment. Venture capital firms will also bring expertise but will require a speedier period for return. Investors will do their due diligence on you, so you need to reciprocate.
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