4 Tips to Avoid Drowning in Startup Expenses

Worcester Polytechnic Institute near Boston may not be a familiar name. However, many major tech and engineering companies regularly recruit WPI grads. They appreciate the well-rounded education of many of their students who also take classes in business, management, and entrepreneurship.

We recently spoke as part of  their executive speakers series about the three core competencies of entrepreneurship: Cash Flow Management, Personnel Management and Distribution Management. We shared with the WPI students and faculty lessons we learned from our experience building the Barefoot Wine brand that we believe all businesses must master in order to survive and thrive.

Many wanna-be entrepreneurs fear failure or loss of control of their companies due to lack of funds. They know many startups fail because they have made too many financial commitments before achieving positive cash flow.

Actually, what they really need is sales! Sales earn investments in real estate, equipment, and personnel, and not the other way around.

In our talk about Cash Flow Management, we offered these tips designed to avoid unnecessary expenses and lengthen the runway until sales take off:

Use Your Hidden Assets. Maybe you have a garage or an unused room you can use as an office to get started. We used our laundry room for the first two years. Maybe you have family members who can do some of the work. Bonnie’s mother and nephew came to live and work with us. What can you repurpose for your workspace? We used an old door on two sawhorses for our desk. This allowed us more funds for the surprising cost of sales required to get our business off the ground, as you too will soon discover

Outsource to Local Producers and Service Providers. Right in your own region are companies that can provide you with many of the goods and services you need. You can pay as you use them, eliminating the need to tie up capital in manufacturing, hardware, or office space. In fact, if you write your contracts properly, you don’t have to take delivery of any products not up to you strict quality control guidelines. We succeeded without ever owning an office, a vineyard, or a winery.

Hold Minimum Inventory. Strive for just-in-time production. Although it’s tempting to go for the quantity purchases to reduce your cost per unit, sitting on unsold inventory can be costly and get your business in trouble. Sales volume must justify quantity purchases. Instead, find suppliers who will warehouse goods for you until you need them. And offer buyers quantity discounts for cash to help your cash flow. We found when buyers buy big, they sell big – and reorder quickly!

Extend Your Credit and Terms. Treat your vendors as strategic allies. Grow together, each benefiting from the growth of the other. Gain you supplies trust by monthly or quarterly meetings where you share your goals, opportunities, and challenges. Show them empathy when you can’t pay your bill on time by giving your vendors advance notice and payment plans. Give them a long-term contract so they see your loyalty.  Be patient. Your positive performance over time will win you the higher credit limits and terms you need to save your cash flow.

There’s more than one way to achieve a positive cash flow in the early days. These are some that worked very well for us. And, if you are lucky enough to have investors, they will be more comfortable working with you when you demonstrate resourcefulness by reducing your need for cash.