Bootstrapping Your Business Cash Flow

Wednesday, May 16, 2007 at 8:30pm by Site Administrator

In bootstrappers do not think linearly, I hypothesized that successful entrepreneurs find more than one way to build their cash flow, revenues, and thus ultimately their profits. They don’t just save some money into a bank account, they find ways to leverage what they have into more.

Bootstrapping a business takes creativity in financing and generating cash flow. I’ve created a stairstep diagram below to show a generic example of how to build $5,000 into $200,000.

Cashflow stairstep diagram

Let’s say that the first $5,000 in operating costs can get you to $15,000 in savings from sales. (Keep in mind that you have to find a way to pay your bills and put food on the table. We’re talking purely operating cash flow here.)

So you invest that $15K into equipment, personnel, materials, services, or whatever you need in order to not only recover that $15K but also an extra $10K, for a total of $25K Whatever you’ve purchased, if it’s equipment for example, might also be reusable in later stages. The investment allows you to boost earnings temporarily.

You keep “stairstepping” your investments and savings to build up to $200K in savings. The general action plan, then, is something like this:

  1. Save $5,000.
    Save your starting capital however you can, whether from a full-time job, cashing in a retirement account, or whatever you actually feel comfortable with.

  2. Invest $5,000.
    Start the business, buy whatever materials or services you need, and keep the business going to the next stage.

  3. Save $15,000.
    Through normal operations, save up $15K in investment capital from startup. This includes recovery of the initial $5K, of course. Note that the time between this step and the last step might actually be the greatest of all the stairstep stages. But if you can get to this stage, each successive stage is potentially easier.

  4. Invest $15,000.
    Invest the $15K in savings into whatever materials, products, services you need to boost your earnings from its current state.

  5. Sell $25,000.
    Sell $25K worth of your services, including the $15K you invested in the last stage.

  6. Save $50,000.
    Using the $25K earned in the previous stage, build up your business by reinvesting earnings until you’ve saved $50K.

  7. Invest $50,000.
    Invest your saved $50K in equipment, etc., as you did at the $15K stage, to boost up your business revenue.

Steps 1-7 are only part of the process shown in the diagram. The other stages are just a repeat of them, until you can stairstep savings and earnings into $200K. I’ve not given any specific example of how money is earned or what it’s invested in because I wanted to focus on the process. This process can be applied to any startup business, and I’ll be giving case studies in the future. The key concept to understand is that while you may feel that you’ve lost time between startup and the first time you save, in this case, $15K, each successive stage will likely take less time.

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