Michael Houlihan and Bonnie Harvey – Workplace Culture Experts & Barefoot Wine Founders

By Michael Houlihan and Bonnie Harvey – Workplace Culture Experts & Barefoot Wine Founders

3 Ways Your Vendors Can Lessen Your Need for Cash

3 Ways Your Vendors Can Lessen Your Need for Cash 150 150 MIchael and Bonnie Harvey

These days, when we talk to new startups, we keep hearing them ask for the same thing—“Cash!” While it’s true that some cash is essential for a startup, these young people don’t know how to respond when we ask if they’ve taken full advantage of hidden resources. They haven’t thought about how to utilize these resources, or worse—they don’t even know where to find them.

We say “hidden” resources because they aren’t taught in higher education, nor are they covered by entrepreneurial media. Today, young people are blinded by the idea that they can’t start their own business until they raise a ton of money. They think they need to borrow cash, find large investors, or exchange their equity for VC money. There’s a whole industry based on this premise alone!

We see startups spend tons of cash at a “burn rate” that isn’t sustainable to their business model. Having the money itself might discourage startups from being resourceful, because “Why scratch around for resources when you’ve got all this cash?” Never mind that positive cash flow is possible before you spend it all away. Never mind that starting slower and smaller would’ve led you to grow faster and bigger, teaching you critical lessons about the cost of sales. But no—“Just give me the cash!”

VCs want startups to “scale fast and fail fast.” They bank on 10 to 20 businesses just like your own, playing a cold, emotionless numbers game with you and your money. They expect that they’ll lose on 19 out of 20, but they only need one to hit the jackpot. So why bother helping the other 19?

Success doesn’t have to come from scaling fast. Success requires understanding. What if you scale so fast that you don’t realize the level of customer service you need until it’s too late? By then, you’ve gone through all the VC cash and you’re not able to service what you sold. You can’t afford it.

Underfunded businesses must grow slower than those with more cash. By doing so, they learn through experience the real cost of sales. They also learn how to utilize cash flow management to finance their growth. But the most important thing they learn is how to tap into their hidden resources—they learn how to see their vendors as bankers.

 Rather than borrow money to pay your vendor, why not get your vendors to buy into your development plan, your loyalty, and your integrity? Get the point across that their products and services will increase your sales, and therefore their own success. Then, they’ll see you as their business partner. Of course, this won’t happen overnight, but this positive relationship is developed and maintained by your behavior toward them.

  1. If you know you’ll miss a payment, warn them beforehand.

If it’s obvious you won’t be able to pay on time, give your vendors as much warning as possible. Let them know you’re empathetic to the position you put them in, and the risk they’ve taken. This creates a sense of trust on both sides.

They have their own bills to pay, and they need your money to do it. Nobody wants to miss or get a delayed payment, but it’s much better to be warned in advance with a payment plan to make things OK for next month, than it is to be surprised at the last second. Try putting yourself in their shoes—treat them how you’d want to be treated.

This sends a clear message that your vendors can trust you. You work with their best interests in mind. Because you’ve mitigated their risk, they’ll be more likely to extend terms and credit to a business like yours.

Extended credit and terms work the same way as cash, cost you less, and don’t require giving up equity.

  1. Think about long-term contracts.

 Like we said earlier, trust is important. Your vendors don’t want to build up your business, give you extended credit and terms, just to have you take it all away. They need to be sure you’ll give them a return on their investment. Creating a long-term agreement lets your vendors know you’ll be around long enough to justify the risks they took on “funding” your growth.

  1. Schedule progress meetings regularly.

Whether or not your vendors ask for them, schedule meetings regularly where you can update them on your short- and long-term plans. Convince them to be on board with you. Share your obstacles and how both of you will benefit from working together.

As your business grows, there will be times when you need more from your vendors in order to take on a big client. This would result in more cash for both of you. If your vendors are on the same page, they can plan for it. They can grant you allowances to help you catch that big fish. Remember—they’re pulling for you!

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