Bootstrapping Your Small Business's Working Capital Needs For Free

Can you image a way to finance your small business's working capital needs - like purchasing inventory, supplies, materials, labor etc - and not having to pay a dime to do it?

Well, not only can it be done but you might have the ability to do it right now.

Working Capital

Let's start by looking at working capital. Working capital is essentially money that a business uses to manage its operating cycle. A retail business needs inventory to sell. It purchases that inventory up front - then works on selling those products over the coming days, weeks, months, etc. But, the business cannot pay for that inventory until it sells those items. Thus, in the mean time, it has to expend some working capital to purchase those products until it can sell them and recoup its money.

The same with service businesses. They need materials, supplies and even labor to get a job done for a customer. But, the business does not get paid until that job is done. However, it still has to cover those materials and wages in the mean time. It does so with its working capital - paying up front and getting reimbursed when the job is done.

Lastly, working capital for a manufacturing business is its life blood. The business receives an order and has to purchase needed materials to complete that order for the customer. Plus, the business has to pay for utilities, supplies and labor to convert those materials into a finished product and it has to do all of this before it gets paid. Thus, it has to have working capital on hand or it has to refuse to take that new order.

Now, most small businesses, instead of using their own money, like to apply for bank lines of credit to cover their working capital or operating capital needs.

The reason is that they offer a great benefit like the ability to draw on, use and then pay that line back throughout the year - as it earns revenue from its operations.

However, bank lines of credit - especially unsecured one - are very hard to get these days. Banks and many other small business lenders either no longer provide lines of credit or make them too hard to qualify for. Plus, if you can get one, they charge high interest from the moment you draw the line as well as huge fees just to have the line available.

And, if you can't get a bank line of credit, what do you do then?

Well, you bootstrap of course and if you do it right - you can get all those same benefits without any of the cost.

Bootstrapping Working Capital

Bootstrapping is about using personal resources to start, grow and manage your small business. It comes to businesses that have no other options - meaning that they can't get business loans. So, they turn to personal resources - like savings, home equity or personal credit cards. And, it is the latter that will provide the greatest benefit for working capital.

Credit cards - personal credit cards - are used by nearly 65% of all small businesses (not just new businesses but all small businesses).

The reason is that these cards provide:

The same ability (benefit) as bank lines of credit - meaning that you can draw on the credit card line, pay it back and draw again.

They are so much easier to get then business loans.

They are unsecured - so no collateral is required. And,

They can be used in your business to cover your operating capital needs.

Most personal credit cards do not have annual fees or any fees for that matter. They do not have to be zeroed out each year (meaning that you don't have to pay them off and replay every 12 months). And, many provide cash back or other rewards - all things that you cannot or will not get with a traditional line of credit. But, their greatest benefit is that they provide billing cycles and grace periods before interest is charged.

Most credit cards have a 30 day billing cycle. That means that if you make a purchase today, you will not get charged any interest until after the billing cycle is completed. Thus, let's say that your billing cycle ends on the 15th of each month. Now, if you make a purchase on the 16th of the month, you will not be charged interest on that purchase for at least another 30 days (until the 15th of the next month). And, if you pay that balance in full before the 15th of the next month - you will not be charged any interest at all.

Additional, many credit cards also offer a 25 day grace period to pay after the billing cycle ends - increasing the time until you get charged interest or have to make payments.

This means that you can make purchases on your card and, not only do you not have to pay for those charges for nearly 55 days (almost two months), but you can use that time to run through your operating cycles, get paid from your customers and pay off those purchases - before you get charged any interest at all - and as long as you pay that card off in full, it will cost you nothing.

Credit Cards For Cash Flow

Let's look at some examples:

A retail business needs to buy $5,000 in inventory and plans to sell those products over the next 30 days. But, it does not have the cash on hand. So, it puts those purchases on a credit card, sells the inventory over the next month. Collects payments from customers - say $15,000 as their mark up is 200%. Then before the card payment is due, take $5,000 from those sales and pays off the balance. In this case, they covered their working capital needs and did not pay a dime in interest or fees for it.

A service business has a new customer that will pay $20,000 to get a job done. To do this, the business will have to purchase $10,000 in supplies and added labor to complete the job. The company does not have that cash on hand and puts those charges on a credit card - completes the job in the next two weeks and collects payment from its customer. It then, before the end of the credit card's billing cycle, pays the balance off with part of its customer's payment and ends up paying nothing in interest or fees.

Lastly, a manufacturer needs $7,500 in raw materials to create $30,000 in finished product that it has customers lining up for. But, it does not have the $7,500 on hand and uses it credit card to pay its suppliers. Then, when the production run is done and the business gets paid - it promptly pays off the card's balance and pays no interest, financing charges or fees.

And, there are as many examples as there are small businesses needing operating capital to grow their companies.

Keys To Success

There are two key factors here:

You have to be able to complete your business cycle within that 30 day billing period. If it takes you more time then that to get paid by your customers - then you will start to accrue interest. However, paying interest for a month or two may not be that bad given that if you did not come up with the working capital in the first place, you would not be able to get the inventory or materials needed and would have to turn away those customers. (Just as long as you can earn more from the job or sale - then the product and any financing would cost).

Be able and willing to pay those charges off in full each month - when paid by customers.

Conclusion

There are times that banks and traditional business financing is not the best option for growing small businesses - especially if those banks and financing companies keep denying loan requests.

Small Business Advice Every Business Owner Could Use

Starting up a new business in the current economic climate is not an easy task and small business advice isn't easily accessible to help the business grow to a successful and profitable empire that you can rely on.

For every business owner, their business should be an asset, a way to plan for their future. Most business owners will rely on their business to fund their retirement in their old age, but without the right structures and knowledge in place, this is a very difficult goal to achieve.

There are a number of companies dedicated to offering small business advice, giving businesses that second chance they need to succeed. As a new business owner you are so busy concentrating on getting your name recognized, that it's easy to bypass some of the important factors that could help your business reach the successful level you are looking to achieve.

The first mistake many business owners make is they go and spend a fortune of their startup costs on expensive equipment and machinery. In fact many of these items can be leased over a set period of time. Leasing comes with its own advantages. Besides not being the owner of the equipment, when the contract period ends, you are able to upgrade the equipment staying up to date with the latest technological trends.

This is some of the small business advice you would be offered by a professional Rather than spending a large portion of your starting budget on computers, you would lease them and then upgrade them in a year, so you always have the latest equipment on hand to ensure your business runs smoothly.

The next piece of small business advice you would probably be given is about small business administration loans. These are loans which are guaranteed by the government, which means that there is a higher chance of being accepted. The additional funding can be a blessing for a new business or a small company looking to expand.

The advantage to these loans is that they have longer payment periods and they are easily accessible, even being awarded to those that have a poor credit history. This is all because the guarantor is the government, which ensures the loan will be repaid taking the risk away from the bank or lender.

Other essential small business advice that every business owner should have is how to get out of debt with ease and relieve any debt the business may have. As long your company is in debt, it will never really make a profit, you need to find a way to repay that debt in the shortest space of time to get past the red and start enjoying the rewards of your success.

One of the most important pieces of small business advice that many business owners could do with is offers in compromise. You have probably heard this term a lot lately, but are unsure on whether your business qualifies or how to go about applying.

An offer in compromise enables small companies to reduce their taxes that are due. While there are strict qualifying criteria, the right professional will be able to give you the necessary information you need which can assist your business in retaining a small cash flow to continue operating.

Lastly is the one topic that many company owners don't really want to discuss, but it's a reality and should be taken into consideration. That is bankruptcy. Before filing for bankruptcy and thinking there isn't any other alternative, find a company that can offer you the information and support you need. In many cases there are other options available which won't tarnish your own personal name.

My Father's Business: What I Learned But Wasn't Taught

Introduction

In all the serious textbooks you'll find that "pedagogy" means child learning and "andragogy" means adult learning. You'll also find that in general terms, the experts believe that children learn best by "being told" and adults learn by "doing".

Maybe, maybe not: but I know that I learned a vast amount about business by simply observing my father in his business. And by having his business all around me until I married and left home at the age of 26.

Here are the major things I learned.

Positioning

Are you familiar with the book "Positioning, The Battle for the Mind" by Al Ries and Jack Trout? It was first published in 1981. I believe that it's one of the finest marketing books ever written. It's still in print.

My father practiced "positioning" for all his business life. His target market was small "lolly shops" and "milk bars". They catered particularly for children with small amounts of many to spend. Officially, he was known as a "wholesale confectionery distributor". But the only products he sold were what he called "kids lines". Lollies and sweets made especially for kids.

If you're old enough, you'll remember going into such a shop with a quarter or a dime or a penny or the equivalent. You'll also remember the open boxes of lollies or "sweets" at say, a cent or a penny each or three or five a cent or a penny. You'd choose from a large number of open boxes and try to get maximum value for your sixpence or five or ten cents. The shopkeeper would take your selection from the boxes and place them in a small bag. You'd take the bag and pay.

Today you buy such lollies in supermarkets prepacked in bags of ten or twenty lollies.

Dad specialized completely in selling "kids lines" to small shops. The shops were usually family businesses. He didn't sell chocolate bars or candy bars or boxes of chocolates. He concentrated on selling "kids lines" to specialist shops that were frequented by children.

That's how I learned the importance of a clear business focus, a narrow well defined target market and a very specific product. He never mentioned either to me or my brothers or sister. But we knew. Al and Jack merely confirmed, decades later, what Dad had practiced.

Business Purpose

I decided to start my own business in 1978. I discussed my plans with my accountant. His was a very successful business that he'd built over a decade. He'd started with only a handful of clients. He himself was quite wealthy.

"What are you doing it for, Leon?" he asked. "To make money, of course," I replied. "Don't be silly," he answered. "anyone can make money. What would you like to be able to do in 10-15 years time that you can't do now?" I thought for a moment: "I'd like to know a lot about Australian food and wine," I replied. "OK," he said. "Do it for that. You see, you must have a purpose for being in business independent of the business itself."

I can't claim to be an authority on Australian food and wine. But over the last few decades, I've eaten some wonderful meals and tasted some outstanding wines.

My father understood this idea well. He ran his business so that he could afford to take us on two weeks holiday at the seaside each Christmas and a week each Easter. My mother also enjoyed musical theatre. Dad ensured that they saw all the big musicals when they were produced in Melbourne.

He worked to ensure that his business made enough money to provide holidays and theatre visits for the family. This also meant that my sister and I had swimming lessons from an early age. And I saw a stage production of Irving Berlin's "Annie Get Your Gun" when I was only 9 years old. These sorts of things pleased my father greatly.

Creating Desire

Almost every time Dad stopped his vanload of sweets and lollies outside a shop, he'd attract an audience of kids. Many knew who he was and what he sold. They'd mill around the open back door of the van anxious to see what to them must have seemed shelves stacked with boxes of gold.

Dad never told the kids to go away. He realized that they were the eventual consumers of his "kid's lines". He'd say, "Look but don't touch" or "Leave some room for me". But he never gave a lolly away for free. Had he done so he would have been competing with the shopkeepers, his direct clients.

The kids who hung around the back of the van were mostly boys. Dad called everyone "Jack". "Keep away from the door, Jack," he'd say or "You can buy these right now in the shop Jack".

He was most surprised one day when a boy opened his eyes very wide and said to him, "How did you know my name was Jack?"

Knowing What You Don't Know

Small, family run businesses were Dad's focus. "Kid's lines" were his specialty. He knew relatively little about chocolate, candy bars and boxes of expensive lollies aimed at the top end of the market. He didn't care that he didn't. He was never distracted from his core business and his target market.

People often said to him, "Clem, with customers all over Melbourne you could expand your business by selling all sorts of confectionery. But he stuck to what he knew. He was frequently approached by confectionery makers who wanted him to carry their "latest big thing in confectionery". He resisted their approaches and their blandishments. He knew what he didn't know. He trusted his customers. They trusted him.

Buy Everything Else Around The Corner

One of my favourite business sayings runs like this: "Do only those things to which you bring a unique perspective. Buy everything else around the corner".

Dad put his personal stamp on his business. As kids growing up we learned this very quickly. He would tell us stories about how other "jobbers" - that's what wholesale confectionery distributors were called then - had branched out into other confectionery associated areas, expanded their product ranges and expanded their business.

But Dad knew something else that Al and Jack pointed out decades later. Line extension is often the first step along business failure road. Do what you do best; better than anyone else can do it. "Stick to your knitting" as the old-timers used to say. I'm not sure how Dad learned that himself. But he followed the principles religiously.

Pushbike To...

I wasn't born until 1939. Dad graduated from selling lollies from a pushbike. First, he bought a horse and cart. He had no affinity for animals. There are many family anecdotes about his trouble with his horse. Before I came along in 1939 he bought his first van. It was a Chevy, about the size of what we'd call a "combivan" today. In 1956 he replaced it with a large van. He also built a large storeroom behind our home.

The bank he'd dealt with since he started business was reluctant to support the construction of the storeroom and the purchase of the large van. Dad was disappointed. He wasn't stopped. He changed banks.

Customers First

Dad worked long hours. His work was physically demanding. He carried stacks of boxes full of lollies from van to storeroom to van to shop. But he tried not to interfere with shopkeeper's busy periods. He'd start calling on customers around 8 am. He'd stop around 7.30 pm. As he worked many years before seven day trading became commonplace in Australia, he worked only Monday to Friday and Saturday mornings.

He'd visit manufacturers to purchase stock during the middle of the day. That suited them. It also meant that he avoided interfering with shopkeepers' daytime trading.

His long hours didn't always please my mother. But they pleased his customers.

At festive times such as Christmas and Easter, Dad always tried to have special stocks readily available for customers. At these times, he'd put aside special chocolate gifts for my sister and I. But customers come first.

I still remember customers phoning at say, Easter, begging for chocolate Easter eggs because they had no stock left. He'd always do what he could to help. This included asking my sister and I if he could "buy" our eggs from us and resell them. He'd pay us for the purchase. We always agreed. We had access to all the lollies we could eat. As kids we welcomed the cash!

A Few Other Things

Dad started and ran his business from 1930 - 1971, when he retired at the age of 72. The pocket calculator, Mac, PC and cell phone to say nothing of the iPad and iPhone were barely glints in Steve Jobs and others' eyes.

But he needed to do complex calculations every day. He was an absolute "whizz" at what was then called "mental arithmetic". He used imperial measures such as pounds and ounces, dozens - 12 - and the gross - 144. Decimal currency wasn't adopted in Australia until 1966.

But none of this bothered my father. He could mentally calculate say, one gross of acid balls at 2/6 a dozen - two shillings and sixpence - less a volume discount of 2.5% and a discount for cash of 1.5%. He didn't need a calculator or any other device in his pocket. They didn't come into general use here until the 1970s.

He didn't make calculation errors. He could always explain his calculations to customers in their terms. That was another reason that they trusted him. His handwritten invoices, completed at the point of sale, were legendary.

Dad was never bothered by "hard times". He believed, as he put it, "mums, dads and grandparents will always find a few pennies so that their kids could buy lollies, even if they themselves have to go without".

The Real Lesson

I learnt a lot about business from my father. But I can't ever remember him saying, "You need a crystal clear business focus and a clearly defined target market" or "Make sure that your customers trust you" or "Don't compete with your customers" or "Have a purpose for your business other than the business itself".

Why Small Businesses Need to Invest in Mobile Marketing?

Business is no different from a conflict. The market is the battlefield and your marketing tactics and strategies are the weapons you use to defeat the ever increasing competition and bring profit to your business or organization. There are business dictators who know the tricks to win all kinds of battles and in any battlefield. The elite businesses control the market at their disposal and these are the people who set the standards for us and we need to view that as a benchmark or a target to achieve. These big guns stamp their authority from the roots of the market to the very top of the business chain.

Small businesses have very little scope to succeed when it comes to competing with bigger or more established businesses. The market is already flooded with many businesses competing for profits and customer and consumer attraction, so in a practical sense there small businesses stand no chance amongst them. The reasons for the same are given below-

Established-

Big businesses have been in the market since a considerable period of time so they have established their name and popularity across all corners of the market. Small businesses are lesser known so their capacity to attract customers is meager.

Clients-

In an established business clients, customers and consumers are in abundance and because of the long relationship between the business and the people, there is a trust which develops easily. A reputation is earned. When small businesses compete with the bigger ones, they find it hard to get clients as most of the latter are with the bigger businesses and the upcoming prospects will mostly opt to follow the reputed ones rather than new ones.

Money-

Big businesses have a humongous amount of money. Small businesses don't. So when it comes to marketing, smaller ones are found in the shadows of the investment done by the bigger ones. Without the money the smaller businesses either perish or join the bigger ones.

Does this mean that the bigger companies will get bigger and the smaller ones just disappear? Is it better to join an established business rather creating a new business at a small scale? Is there any solution to overturn this?

A big 'NO' is the answer to all these questions. As it appears, the market is dominated by the elites and small businesses will be consumed by the power of the former- just like the case of David and Goliath. But, in real sense we forget that 'the bridge is not crossed until we reach the bridge'. Yes. It is an overwhelming challenge to step foot into the market with a small business, but it is not a crime to do so. There is space for new prospects because the business thrives on competition, and with a smaller establishment you are certainly competing.

The biggest factor that might sway you away from setting up a small business is the element of limited money at our service. But, with a smart and tactful utilization of the limited amount money available, big targets can be achieved. Planning is one of the major things required as assistance to money, without proper planning millions of dollars might just be invested for nothing, in an opposite case- a few hundred dollars might earn you a fortune so planning is of prime importance.

Smart advertising and marketing are the ploys that one should implement tactically into the business growth plans. Marketing is key to do execute absolutely anything in a business. If you need to attract customers- marketing will help. If you need to increase sales- marketing is the answer. If you need to create an image in the market- marketing will come handy. If you need to build a brand- marketing is certainly the best option.

The only problem lays in the fact that marketing requires money and small businesses certainly don't have that. The prominent rise of telecommunications has certainly answered the call for help by smaller establishments. Mobile marketing can become a phenomenon and help small businesses prevail. The mobile is a device used by all so there is a medium which can deliver the message effectively and hence support the business cause. The expenses required too, are minimal and help a business expand and spread its word across on a larger scale.

What is Mobile Marketing-

Mobile marketing is the procedure of advertising to the masses through their portable gadgets or mobile phones. This sort of marketing is relevant to online or internet advertising, nowadays with the advent of more usage of mobile phones and tabs- more individuals are beginning to invest more time on their portable devices and less time on their computers, so it is obvious that the concentration of marketing platforms have shifted from computers and internet to mobiles and portable devices.

There are a great l similitude between web advertising and portable advertising however there are some really vital distinctions and differences.

Mentioned below are some tools and methods of Mobile marketing-

Mobile phone marketing-

SMS (Short message services) on mobile phones are used to optimum effect for mobile marketing. Text messages regarding new offers or new business prospects would be sent to potential customers who would read the message and act according to their interest. Messages sent in bulk cost less and the target of reaching out to the people is achieved without making any heavy investments. SMS method is the most well-known way of mobile marketing. This is truly simply sending quick messages to individuals' mobile devices or telephones and in a ton of routes is like message promoting. The most amazing element here is that you are endowed to have the ability to send your message to target customers who may read the message at their convenience.

Mobile media marketing-

Similar to SMS, there is an MMS (Multi-media message service) as well on our mobile phones. MMS service gives a business the freedom to deliver a more dynamic an effective message. In an MMS, sounds, pictures, videos, ads etc can be forwarded to potential customers who would respond if they are in need of the business propositions.

Online mobile marketing-

There are websites which are specially designed for mobiles. Portable devices do not have the same internet speed as computer routers and servers. Mobile websites are very easy to access due to the size of the webpage i.e. in Mb's (megabytes). The costs of advertising on such mobile web pages are very affordable and are also a tool to get many customers.

This is one of the most common ways to market and advertise to the masses through the mobile marketing medium by placing advertisements on web browsers and search engines. With the advent of a huge number of people accessing the web pages using their mobile device recently, the mobile marketing platform is wider than before. Sooner or later, but inevitably mobile devices will surpass the computer as the mainstream or general way to browse the internet and get access to it.

Mobile app marketing-

With the introduction of tabs, androids, i-phones and smart phones, the usage of app's (applications) on mobile and portable devices have increased. This is a complex procedure but a really effective method of mobile marketing. In this kind of marketing, businesses develop apps which are used by mobile users. If the app is liked by the mobile owner then the business name is considered and maybe a customer is attracted.

Example- If an air ticketing company wants to create an app to attract people and persuade them to buy tickets to various destinations across the world; they can create an app which will guide the user to check flight listings, timings, expenditure, offers etc. If the app name is based on the b=business name then, the air ticketing name will become synonymous with the app and people will enquire about tickets to the business which may offer discounts or promise so through their apps.

Nowadays more and more people have started to play games on their mobile phones businesses can start advertising their name and services through these games. When a person is playing a game, and your business name appears whenever the person wins- he remembers that name and connects to it whenever he visits the market. A business needs to contact a app developer who is under contract to develop an app game for some company, if the company agrees to publish or display your add it will benefit your business that too with lass investment. The quality and level of mobile app gaming is increasing rapidly and hence mobile app marketing has become a big platform to display your marketing skills for the growth of your business.

All of this concludes to one strong observation. Mobile marketing is on the rise and there is no reason or obstacle that might stall its growth. Using this affordable and effective medium of marketing, small businesses can actually compete with the bigger businesses in the market, not directly but gradually with the course of time. With mobile marketing, a small business may not always become as big as the elites but it can surely create an atmosphere that can make a business self-reliant and self sustaining.

Business Exit Strategies

It may be time to get out of the business. Maybe you've made enough money, or maybe you're just tired. Maybe you'd like to build a different business. Whatever your motivation, you'd like to pursue this new path while you still have your health and ambition. You need a business exit strategy.

If the business is a good one, you may want to see it survive. Rather than selling it off to the highest bidder, you may prefer to "keep it in the family" and pass the business to your children or another relative, or sell to an employee.

Family succession

Many entrepreneurs dream of passing their business on to the next generation. Unfortunately, family succession usually does not succeed. It's been reported that 70% of family businesses do not survive the transition from the founder to the second generation.

Family rivalries and other dysfunction often intrude to derail the business. The founder refuses to cede control. Founder/parent installs his favorite child as the leader, who is unsuitable for the role. The next generation leader and managers are poor decision-makers. The sibling denied the role of chief executive feuds with the chosen one.

Founder/parent must take carefully considered steps to create the conditions for second generation success to occur. It will be important to distinguish between company leader, managers and owners and make certain that no one feels devalued. It will be incumbent upon the founder/parent to preserve not only the business, but also family relationships and remember that family gatherings ought to be happy occasions that all family members want to attend.

If you'd like to pass the business along to family members, start by asking them if they'd like to become the second generation of owners. If any or all agree to that proposal, then consult a family business specialist to help with the process.

The ability to groom your hand-picked successor is a wonderful thing and recruiting a specialist to help you choose the candidate who is best qualified to assume the reins will go a long way toward ensuring next generation business success. Check with the graduate management program of a local college or university to find out if a family business specialist is available to help with the transition and follow-up family business coaching.

Sell to employees

If no family members are interested in owning and running the business, you may find that one, or several, of your employees may be interested in buying you out. Don't be shy about raising that possibility. What better way to boost confidence and morale than letting valuable employees know that you trust them enough to place your treasured achievement into their capable and caring hands?

Selling to employees can be a great exit strategy. The employees will be able to invest in a business that they know and trust. They know the challenges and opportunities that the business may encounter. They know the customers and the customers know them. They have institutional memory and know how things run.

Encourage employees whom you know would make successful business owners to consider a buy-out proposal or an employee stock option plan (ESOP)? Call your business attorney and/or accountant and make sure that you have the best legal structure for the exit strategy that you select.

Exiting the business

If the business has tangible assets and healthy sales, your exit strategy can provide for you either a retirement nest egg or start-up capital to create yet another business. Keep your options open and start the preparations early.

Maintain detailed and credible financial records: demonstrate profitability; show good cash flow; keep your debt to equity ratio low. Expect to show a prospective buyer or your family members 5 years of data. If the business owns property and/or equipment, ensure that all is in good working order.

To sell your business for a price that accurately reflects its value, speak first with your accountant and business attorney, next with a business valuation expert or appraiser and then with a business broker. Your accountant or attorney may also know the right buyer for your business.