Internal Business Resources
In some cases a solution to a funding problem is simply to wait until more profits and cash have been made; building a business in this way using internal resources through retained profits is also called ‘bootstrapping’. Doing this will usually produce a stronger balance sheet, which will also make your business more able to attract external commercial investment later.
Some tips for successful bootstrapping:
- Consider selling consultancy advice before the launch of the lead product or service
- Consider using revenue sharing arrangements to reduce cash burn in your business
- Make arrangements with suppliers and/or clients to gain early cash flow advantage
- Don't under price the product/service offer
- Make sure that you have a realistic cash flow forecast
- Agree your terms of trade at the pre-trade contract stage
- Don’t overtrade and draw in more working capital than you can realistically finance
- Police the payment terms
- Don’t be afraid to use recovery agencies
- Monitor performance
Benefits of internally generated cash:
- No financing cost.
- Demonstrates ability to get the most out of available funding - an external funding source (including grant givers) will want to see that existing and future funding resources of the businesses are managed adequately and what impact that management may have on cash flow.
- Progress made before seeking commercial funding will improve credibility, which will also enable the business to negotiate better terms.
- Retains ownership and control.
