Bootstrap strategies of effective use of business capital
Once you begin your business and accumulate your initial capital, strategies should be implemented to use that capital to its fullest potential.
Generate sales quickly.
By attacking a small market niche with a non-capital-intensive business, the entrepreneur is more likely to become operational quickly. A key for all business is flexibility. If it looks like your primary product is going to involve a lengthy sales process, listen closely to your customers and see what it is they would buy sooner. Perhaps they are not eager to buy your revolutionary software and retrain all their employees. Maybe what they need immediately is for you to provide the service your software provides. Be flexible and willing to adapt to opportunities you discover in the market place.
Generate Cash Flow Quickly.
Cash flow is crucial. While this is true for all businesses, it is especially critical for start-ups. Profits do not matter-cash flow does. Choose projects or products that will generate cash quickly and steer away from capital-intensive businesses that gobble up cash.
Sell High-Valued Products and Services.
The entrepreneur is likely to be the chief salesman in the new venture. Since the entrepreneur’s time is extremely valuable, it does not pay to have the entrepreneur peddling low-cost items to multiple customers. Higher-valued products are necessary to cover the cost of the entrepreneur’s time and the personalized selling that is necessary in new ventures.
Create The Best Team You Can Afford.
In the early stages of a venture’s life the business will be unable to support many highly-compensated people. Choose people with an entrepreneurial spirit who will add value to the enterprise and add to the management team as the business model is proven and cash becomes available.
Control Your Growth.
Perhaps the best strategy to conserve cash is to grow more slowly. Rapid growth consumes capital at an alarming rate as inventories and people are put in place to support expansion in advance of sales and collections. A strategy of more moderate growth may allow the business to be self-financed but will certainly result in less need for outside financing.
Manage Your Accounts Receivable. If possible, get customers to pay in advance or provide a deposit to improve your cash flow. At a minimum, be diligent about collecting accounts receivable and enforcing your credit terms.
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