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4 Ways to Prevent Sinking in Startup Expenses

You’ve probably never heard of Worcester Polytechnic Institute near Boston. But, a lot of big-name engineers and tech companies regularly recruit WPI graduates. They welcome the students’ well-rounded education, and the fact that many of them take classes in management, business, and entrepreneurship.

Recently, we participated in their executive speakers series. We spoke about the three central proficiencies of entrepreneurship: Cash Flow Management, Personnel Management, and Distribution Management. We shared lessons we learned while building the Barefoot Wine brand—lessons that we think all business must master to be able to endure and prosper.

A lot of entrepreneur wannabes fear loss of control or failure of their business due to lack of money. They’re aware that many startup businesses collapse because they’ve committed too much before seeing positive cash flow.

But what they actually need is sales! Sales earn investments in equipment, personnel, and real estate—not the other way around.

When we spoke about Cash Flow Management, we offered this advice to avoid preventable costs, and further the runway until sales take off.

Keep Minimum Inventory. Aim for at-the-moment production. Even though you’ll be tempted to reduce cost through buying in bulk, holding onto unsold inventory can be expensive, and can eventually get your company in trouble. Quantity purchases must be justified by sales volume. So, find suppliers who will keep goods in the warehouse until you need them. And offer quantity discounts to buyers for cash to boost positive cash flow. We’ve learned that buyers sell big when they buy big—and they reorder quickly!

Utilize Hidden Assets. Do you have an unused room or garage you could use as an office to get started? For our first two years, we used the laundry room. Maybe your family members can help out here and there. Bonnie’s nephew and mother lived and worked with us. How can you reorganize and optimize your workspace? Our desk was an old door on two sawhorses. This gave us a cushion for the surprising cost of sales needed to get our company off the ground, as you will discover very soon.

Extend Your Terms and Credit. Think of your vendors as strategic partners. Benefit from each other’s growth. Gain the trust of your suppliers through consistent meetings where you share opportunities, challenges, and goals. Be empathetic if you’ll be late paying your bill by giving vendors advance notice and a payment plan to make it up to them. Develop a long-term agreement so they plainly see your loyalty. Just be patient. Over time, your positive performance will earn you the better terms and higher credit limits you’ll need to save your cash flow.

Outsource to Local Service Providers and Producers. There are companies right in your region that can help out with many goods and services you’ll need. And you can pay as you go, removing the need to tie up capital in office space, manufacturing, or hardware. If you create your contracts the right way, you don’t even need to accept delivery of any product that doesn’t match your quality control guidelines. We found success without ever owning a vineyard, a winery, or an office.

There are so many ways to accomplish positive cash flow in your early days. These are just a few that worked excellently for us. And, if you’re fortunate enough to have investors, they’ll be at ease when you display resourcefulness by reducing the need for cash.

For more, read on: http://c-suitenetworkadvisors.com/advisor/michael-houlihan-and-bonnie-harvey/

 

MIchael and Bonnie Harvey
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