ENT 650 Week 6 Blog

Reduce The “Demand for Funding”

At this stage of the M.E class, you might realize that this is one of the most challenging and critical to figure out how to finance a business. While you feel overwhelming and confused by too much information and needs for a start-up business, a step can brighten or doom your business since it comes to question on how to reduce the demand for funding? How to stretch the initial expenses? How much is the magic cash amount? etc., You needs to think creatively because every dollar you avoid borrowing and spending is a dollar you won’t have to pay back and a dollar’s worth of interest that you avoided.

Here are some solutions:

Before checking out the resources provided, make sure you have done everything you can to reduce the demand for capitals of your project. You may see yourself at a starting or expanding phases that does not really require funding or requires less funding.

Analyze your entire business plan prior to approaching a bank and or investors. Talk to your accountant or business advisor to set a more realistic financial perspective.

Naturally, any entrepreneur might think that there will be nice to have the latest office equipment, new of everything. Keep in mind, start-up entrepreneur can suffer until later for those business luxuries. To reduce initial expenses by cutting back, it is recommended to consider short-term solution like renting the building and necessary equipment; purchasing used equipment rather than new one; sharing office space and hire part-time employees till you can afford a private office and hire full-time employees. In other words, think about what your budget can allow. You can invest in small items such as furniture that does not cost you a lot but they can produce meaningful intangible value because creating a great office environment will improve productivity. It’s worth to spend little money to create a nice environment.

There is exception that going inexpensive or cheap will not work. For example, if you absolutely need software to operate the business, it is recommended to consider spending extra money on a quality program. Take advantage of any available discount (most software companies offer discount for start-up and small business). Try not go for free or lowest-priced tool, because it means also the lowest quality and that does not look very professional. It is better go with a good quality option in the first place than to replace cheap tool multiple times later that will  cause more costs.

If your business already set up and operating, look closer to profit and loss weekly or monthly to adjust the business budget and goal. You may be able to stretch your dollars a little farther by increasing the time before you have to pay for inventories and supplies through vendors. Decreasing the time before your customers pay you through credit terms. These are two of many key actions of accounts payables and accounts receivables management mentioned in the book Entrepreneurial Finance of Steven Rogers.

It is important to estimate the expenses accurately. Plan where you will get sufficient capital. Put this into your research project because a new business may cost more than you anticipated. Remember as you think of ways to reduce the demand for capital do so without increasing the risk of your business.

Resources:

Rogers, Stevenson (2014). Entrepreneurial Finance, Third Edition: Finance and Business Strategies for the Serious Entrepreneur. McGraw-Hill Education.

 

 

 

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5 thoughts on “ENT 650 Week 6 Blog

  1. Hi Mary,

    This was an excellent article, I enjoyed reading it. You have great points regarding the cutting of expenses during the early stages of launching a business. While we all would like to have that new shiny office equipment, we really don’t need it! Starting a business while stripping off any extra un-needed expenses will definitely increase our chances of success because we’ll have less cash involved.

    Austin

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  2. Mary,
    Yes, at this point in the ME journey putting the numbers down into the Assumptions, etc. has been the most challenging and the most depressing of this journey. I agree about not buying all the shiny new tools just the ones that are critical to the success and keep the integrity of the product high. I’d rather pay once for tools than twice.

    As I mentioned in the cash assignment my biggest expense as I see it is my rent because I can’t start in my home because of our poodle, Trigger. Since he cannot eat chocolate, he would have me move out before he’s going anywhere. On the serious side, after looking at the numbers I am going to have to try to find a less expensive place to bake which meet the Health Department and Department of Agriculture’s standards.

    I appreciate the positive attitude you present in all your blog posts.

    Cece

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    • Cece,
      I agree that rent is a big expense for any business. It is hard for new business but keep looking, don’t be discourage. Hope you will find the place with the professional kitchen (you may ask the church or any of your friends who have the second kitchen and rent it out cheap for using 1-3 time per weeks). I would like to see your poodle Trigger or post his picture in your website.
      Mary

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  3. Stretching the dollar and pointing out that for every dollar you will be paying interest on it really hits home when you consider taking out a loan. Yes, having the cash right now would be nice but will it be worth it in the long run when you are paying the bills, loan payment, and any interested that is tacted on?

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  4. Hi Mary,

    You hit on some good points in this post. Cost cutting is the easy one. But, as you point out, there are other ways to improve cash flow. Reducing inventories and limiting accounts receivables can be a great way to free cash for operations. And if you can keep your cash flow positive and growing, there may be little need to seek outside financing.

    Like

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