The Catch Twenty-Two’s of Cashflow

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If you’ve already started a business then you’ll know the key to success is found in managing your cash flow, as a business that doesn’t, is a business heading for disaster – fast!

In fact, at the heart of all small business failure tends to be that of mismanaged cashflow, meaning the entrepreneur(s) weren’t able to keep their business ticking over, from a financial perspective, and this is what led to its demise.  See, you can have the best idea, product or service in the world but if you don’t have the cash to fund the delivery of said idea, product or service – you’re simply not going to be able to keep your head above water and you will find yourself drowning in a sea of financial frustration.

There are many things you can do if you find yourself in hot water, for instance, invoice factoring companies can help lend you money against invoices – essentially, advancing the funds you require to facilitate the deliverable pertaining to the invoice.

The challenge, when it comes to cash flow, particularly in the early days when it comes to raising capital is that often you require the funds to be in place before you can land a big contract (as the customer usually wants to see that you can deliver on your promise before signing on the dotted line) yet the financiers (particularly venture capitalists) want to see you have the contract in place before agreeing to lend you the money.

This is the frustration faced by many startups as this catch-twenty-two situation is most common in the early days.

In that vein, start-ups tend to need to be a little inventive and innovative when it comes to overcoming this catch-twenty two situation.

Many startups find themselves in a position where they need to bootstrap their way to success; meaning, they don’t have limitless pots of investment that can be used to fulfil their vision.  

Today, it’s quite common to see small companies forming part of a larger company – which is known as intrapreneurship.

For instance, if you are pitching a product to British Airways, for instance, as an external supplier – particularly if you are a one-man-band, they might not be keen… yet, if you were to form a satellite offshoot of their company, meaning they fund the fulfilment of your vision that you then sell to them, you have a guaranteed order and the financial backing of a big company.  The downside, however, is that there will be a non-compete clause within the deal, which means your novel technology, for instance, will either belong to the company or be licenced to them exclusively – meaning your dreams of ubiquitous expansion will need to be put on hold.

The alternative, particularly when it comes to technological innovations, is to collaborate with other people that form cornerstones of your company; and split the profits with these people.  This, therefore, facilitates the talent you require to turn your vision into a reality, without costing you much upfront cash… yet, the profit you are likely to make and the say you have in the company will be significantly dilluted.

That said, it’s often better to have a thin slice of a large pie rather than a large slice of nothing.

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