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12 Ways to Fund Your Business Part 2

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Cash flow and managing growth are a key to any business.  What are some safe ways to do this?  Last week, I introduced 12 Ways to Fund Your Business Part 1.  I split the 12 into three levels.

Level 1 funding opportunities are low risk and highly recommended for any business. Level 2 opportunities are more expensive and a bit riskier but could be necessary in high growth situations. Finally, level 3 should be considered only after looking at options in levels 2 and 3, but we will talk about that more in a couple of weeks.

Let’s recap:

Level 1 Level 2 Level 3
1.     Bootstrapping 5. Personal Loans 10. Asset Based Lending
2.     Customers and Vendors 6. SBA Loan 11. Factoring
3.     Smart Leasing 7. Private Equity 12. High Interest Credit Cards
4.     Bank Line of Credit 8. Government  
  9. Mezzanine Financing  

I am going to focus the discussion in this article on the first two ways to fund your business.


Bootstrapping involves using your own savings and sweat equity and reinvesting your profits back into your business. Although this process can be slower, it is recommended by Dave Ramsey. In his article, Three Myths about Small-Business Debt, he confronts the following commonly held assertions:

  1. You can’t build or expand a business without debt.
  2. A line of credit is needed to cover cash-flow fluctuations.
  3. Large purchases require debt.

I tend to agree but also think that using this approach alone may result in slower growth than many startups require.

I recently came across a very convincing article called “Five Reasons To Bootstrap Your Startup”.

These five reasons should be considered for even more established businesses.  I will give a quick recap, but read the article because it is insightful.

  1. Culture and Values – When bootstrapping, you are much more in control of your culture and values and will tend to attract other entrepreneurs with similar values. I experienced this first hand. The talent that comes into a good culture can be a powerful launchpad for growth.
  2. Focus on Cash – Nobody spends the owner’s money better than the owner. Of course, it does take some discipline and guidance to forecast the cash flow, which should be of utmost importance.
  3. Accountability – There is a tendency to focus even more carefully on revenue, profit, and other Key Performance Indicators. Check out my blog article called “Keeping Score – Why KPIs?”
  4. Control – Bootstrapped entrepreneurs know their business better than anyone and tend to have more confidence and can make good decisions.
  5. Leverage Future Fundraising – Basically, when you do want to expand with private equity, you have many more options as far as whom you work with.

Bootstrapping is a powerful way to grow your business and ultimately gives you more freedom, control, and leverage in the future.

Customers and Vendors

Customers can be a very helpful way to fund your business by allowing you to pre-bill.  I have experienced this quite often when working in media marketing businesses.  Many companies have budgets already set aside for the year so you can pre-bill as long as it falls within the correct fiscal year.

You should strive to set up the shortest terms as possible.  It is common to start with 30 day terms, but you can always negotiate “Due Upon Receipt” terms and go from there.

Have a very systematic approach to review the Accounts Receivable. You would be amazed at how often payments are not made on time due to invoices being emailed to the wrong person or sent to junk mail or invoices being lost in the mail or sent to the wrong address.  Here is a good approach.

  • Invoices that are past due – Email and get acknowledgement that they received the invoices.
  • Over 30 Days Past Due – You can always do this sooner, but I would recommend having someone give them a call.
  • Over 60 Days Past Due – At this time, the CFO, Owner, or Controller should give them a call and discuss when payment is going to be made. It might be necessary to let them know that you may need to discontinue services or taking additional orders until payment is made. This will be dependent on the creditworthiness of your client and history. If this is your largest client, you will need tread softly, but you still need to start the conversation.
  • Over 90 Days Past Due – I would strongly consider discontinuing all services and put them on hold as a client. You will need to have regular conversations to understand the delay.


Having good vendor relationships can be just as important as customer relationships. Here are a few good tips for managing vendor cash flow:

  • Set up vendor terms for as long as possible. At least make sure they are longer than your client terms.
  • Do not pay early unless you receive a significant early discount. If they do give a discount, consider how that affects your cash flow and if it is worth it.
  • Pay on the due date by bank ACH so you can manage your cash flow to the day. You can get a few days of float by paying by check, so this is always an option.
  • Make sure you take advantage of any industry terms and conditions. For example, in media advertising, it is common to set up sequential liability terms so an agency is not required to pay until the client has made payment. See Section 3c in 4A’s/IAB Standard Terms and Conditions Version 3.0.


In summary, you should also first strive to build your business by using your own personal savings, hard work, and good cash flow management so you can organically grow your business. Be sure you set up your contracts with your customers and vendors so you can hold onto your cash as long as possible. This basically is a free loan and can help significantly as your business is expanding rapidly. Hire a fractional CFO to help you manage this cash flow.

Next week we will continue looking at level one funding options, focusing on smart leasing and bank lines of credits.