Do You Need More Money – Or Improved Relationships?

A common lament we hear from startups is, “If I only had more money!” or, “I would have succeeded but I was undercapitalized,” or even, “I ran out of money!” But what is money but trust in the form of investment? Someone is taking a risk on you. Money without trust can be very expensive.

The banks love it when you have to come to them to borrow money at high rates to pay for your services and supplies. When you can’t collect the money owed you before your bills are due, they are right there with short-term loans and lines of credit.

So do you really need more money? Or do you need to develop better relationships with your vendors and suppliers?

First, you build a relationship based on trust with your key suppliers. With that foundation, they will be more likely to raise your limits and extend your terms. Over time, they will realize that your success is a key to their own growth and success.

But how do you get to that level of trust? It takes empathy, communication, dependability, and good behavior – over time. They have to believe that you have their best interests at heart. That means that you must be clear about what their best interests are. Where are they going with their business? Who is their competition?  Where do they want to be in five years and how can you help them get there. We chose our suppliers and vendors based on how we could grow our businesses together. We also took this approach when choosing our distributors. We offered them big discounts on volume for cash and then helped them sell it. They became loyal and we enjoyed dependable receivables.

The whole idea here is to reduce your need for cash in the first place – so you don’t have to borrow so much or so often. Ideally, your buyers pay you before your bills are due! And conversely, your bills ideally aren’t due until your incoming checks have cleared. The reality is somewhere between that ideal situation and borrowing money to pay for all your supplies and services. This is where building a strong relationship based on trust really pays off. The stronger the relationship, the less money you need! Period!

When you write a business plan, you itemize the costs you expect to pay. Then you start your business and find out costs are higher than you planned. When you itemize your receivables, they are almost always less – and received later – than you planned! In other words, your business plan is generally impractical. The day after you open your doors, it’s the cash flow projection that is guiding your business, not your business plan. Your business relationships directly affect your cash flow projection and the very survival of your business.

The sooner you get started, the better. Identify right now the suppliers and vendors you can grow with. When you grow, they grow.

But don’t leave out the magic ingredient, the foundation of trust. Let your major vendors know your plans, your directions, and the obstacles you face. Offer them long-term contracts that make them feel comfortable about helping you grow. Call in advance when you can’t make a payment and offer a plan to get your account current. Meet with them on a regular basis to review your progress and ask for the help you need – that will result in more sales for them.

Remember your vendors and suppliers will judge you more by how you behave when you’re in a pinch than when it’s smooth sailing. That’s when you show your true intentions. That’s when you show your stuff and build your trust, and that’s when you can reduce your need for capital.