Small Business

How to Bootstrap Your New Business Wisely

Starting a business is tough—and that goes double when you’re starting a business in an economic environment this challenging. If you’re bootstrapping (and chances are good that you’re using your own money to fund the company) it’s important to use your resources as efficiently as possible, You want to protect your capital but also invest where it counts most. I’ve been helping businesses for years, and here is what successful bootstrappers know:

Control fixed expenses

At some point—usually when you need to bring other people aboard to accommodate growth—you’ll probably need an office. Until then, work from home and use e-mail and cell phones to communicate, so you can minimize fixed expenses like office space and furniture.

Use contractors as much as possible

Avoid hiring people even when you need additional help. By using contractors you can save significant capital when compared to hiring employees (BusinessWeek.com, October/November, 2007). Your per-hour costs may be higher for projects, but you don’t have to deal with payroll taxes, benefits or workers’ comp, and you have a lot more spending flexibility because when there is no work, you don’t have to pay. Just beware of IRS rules differentiating employees vs. contractors – the government is cracking down on companies that treat contractors like employees.

Establish good record keeping habits

Getting it right from the start establishes the proper foundation as the business grows. Good record keeping helps you make good decisions because without good information you cannot make business decisions. Having your records in order not only helps you monitor successes and failures, you’ll need it should you get audited by the IRS, and may be required by states you do business with or perhaps even your insurance company looking to raise premiums.

Make sure you are adequately capitalized

I cannot overemphasize the importance of financial planning in the early stages of business life. Projecting cash flow requirements — how much money you will need and how much money you will make — is something all startup companies must do. This report will help you estimate how much cash you will need to start and where and when it will be spent.

Have business advisors

You may be the expert on your business, but you’re likely not an expert in law, accounting and banking. So it’s important in the early stages of business life is to establish relationships with qualified business advisors, who possess the vital information you lack. Examples include:

• Find a law firm that focuses on entrepreneurs.
• Hire an accountant who works with entrepreneurs and who understands the economic realities of a start-up. Along with your lawyer, he or she can help determine whether you should form a corporation for your business.
• Develop a relationship with a commercial bank and establish a small line of credit — even if they will only offer the company a small credit card line. This is the first step in establishing a credit history for the company for future borrowing.

Chris E. Talis is a CPA, MBA and senior partner at Hedgerow Mergers & Acquisitions, which delivers merger, acquisition and business consulting services targeted primarily to the middle market community of private business owners with annual sales of up to $100 million.

Tags: business, new entrepreneurs, Small Business