Lace them up high ladies and gentlemen; we are getting ready to talk about bootstrapping our organization. In case anyone is wondering what exactly bootstrapping means, it is simple; bootstrapping refers to financing and funding your business without utilizing traditional sources of equity and capital such as bank loans.
Credit cards, savings accounts, and retained earnings are just some of the few sources used to bootstrap an operation. What we need to look at is the equity gap and why bootstrapping occurs often in small businesses. First let’s define the “equity gap”; it is the absence of small amounts of risk capital from institutional sources for companies at the seed, start-up and early-growth stages. This arises because the fixed costs of investment appraisal and monitoring make it uneconomic for venture capital funds to make small investments, and also because of the reluctance of banks to make unsecured lending.
Now that we understand where this gap comes from, we need to understand how we can approach our company’s financial management in order to implement a successful financial strategy. Cash flow is very important; we may have the ability to sell your product or service, but where will the cash come from if demand outweighs current supply? There is always a time gap between production and accounts being paid, this creates a situation where cash needs to be available in order to sustain operations. I mention this because if we are bootstrapping our operation and we do not have the ability to fall back on a lending institution for short term loans, we must have a clear vision of the situations that are likely to occur 3 to 6 months in advance.
Another crucial aspect of “strapping the boot” on our business is efficient use of resources and time. In order to make our operation run as productively efficient and cost effectively as possible, we need to monitor our expenses and make sure we implement clear time guidelines. Our marketing activities should be geared toward guerilla marketing and creative thinking which can produce a greater return on investment with the right campaign.
We need to become an avid personal promoter, our business depends on our ability to market our operation to the community we are targeting. When bootstrapping an operation there may not be financial resources available for high level public relation firms and advertising campaigns. This means that every employee, most importantly the president or CEO, should be avidly out promoting the business through different social engagements and word of mouth.
The key concept behind bootstrapping is always keeping a close eye on the efficiency of your operations from A to Z. Our financial obligations become much more important when bootstrapping because they need to be monitored with greater detail in order to plan for changes in market and industry trends that could influence our business. Our overhead needs to be kept to a minimum at all times and all our revenue should be diverted back into the company for future growth and stability. We should use cost efficient guerilla marketing techniques to make our target market aware of our company. With a good executive team and attention to detail, bootstrapping can place us in a great position to receive higher levels of capital once we break the risk barrier.
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