Doc Franchise Writings and Ramblings

The proliferation of B2B franchises - service based franchises - coaching and consulting franchise opportunities has created a whole new category and level of need for financing.

It's been hard enough if you were a capital based franchise (we need build-out, equipment, vehicles, etc.) For a time it seemed all small business capital had dried up. It is a bit better but not a lot.

Today, non-capital intense businesses whose primary needs are working capital, capital for growth (more territory, expansion of marketing efforts, etc.) and only minor capital expenditures compared to manufacturing and retail types still may require capital in addition to their candidates capabilities.

Where do they go? Where does anyone go? Are there alternatives?

Before you run out and begin your search for capital, you may want to consider an approach that many businesses — particularly start-ups and small businesses that may not yet qualify for loans or be able to attract venture capital — have used with more than a little bit of success. It's called bootstrapping. Bootstrapping or booting refers to a group of metaphors that share a common meaning, a self-sustaining process that proceeds without external help. The term is often attributed to Rudolf Erich Raspe's story The Surprising Adventures of Baron Munchausen, where the main character pulls himself out of a swamp, though it's disputed whether it was done by his hair or by his bootstraps.

Today we refer to bootstrapping and it means finding money and resources by any means possible, including begging, borrowing, bartering, sharing, and leasing everything a company needs.

In short, bootstrapping is guerrilla financing.

So, who bootstraps? Many companies do. In fact, some estimates put the total at 75 to 85 percent of all start-up businesses. Three fundamental rules for effective bootstrapping are

• Hire as few employees as possible. For many companies, employees are the greatest expense. When you add up salary, benefits, overtime, and other employee-related expenses, it doesn't take long for any budget to feel the pinch. Bootstrappers avoid this pinch by hiring (and paying) as few employees as possible.

• Lease, share, and barter everything you can. No, you don't have to pay cash for everything that you need for your business to run. Many companies share facilities, equipment, and even employees with one another to spread out their respective costs. An increasing number of firms also have discovered the wonderful world of bartering, the trading of goods and services to other companies in exchange for the goods and services that are needed.

• Use other people's money. Why use your own money when someone else will let you use his or hers? We're not talking about getting a loan, we're talking about convincing a vendor to allow you to pay 30 or 60 or even 90 days after you receive your goods from them. Or, on the other hand, obtaining payment from your customers before you deliver their goods or services. In each case, you have an opportunity to use someone else's funds to your advantage — for a while, at least.

Some of the more common approaches to bootstrapping are:

• Seeking funds from friends and family.

• Getting a home-equity loan.

• Offering equity to employees and vendors in lieu of salary or cash payments.

• Bartering for goods and services.

• Tapping your credit cards.

• Convincing vendors to accept extended payments.

• Starting your business part time while working a full-time job.

• Getting an extra job.

• Working from home or in your garage.

• Sharing offices with another company.

• Encouraging customer financing (deposits and early payments).

• Looking for angel investors.

• Pooling founders' savings.

Although the need for bootstrapping tends to go away as a business grows and becomes more established — and therefore becomes more attractive to conventional lenders and investors — any company, no matter how big or how small, can benefit by applying bootstrapping techniques in its day-to-day financial activities.

One of the greatest dangers as businesses become more established is the growth of overhead — the costs of facilities, administrative personnel, equipment, utilities, office supplies, furniture, and so forth — at a rate far faster than the growth of a company's sales. This is a recipe for poor profits, sluggish growth, and loss of competitive edge.

Bootstrapping can help keep your company lean and mean while keeping overhead in check and profits high.

John is a 26-year professional in the franchise industry. He has been a franchisee, a franchise executive and an advocate/consultant to the public and to dozens of franchise companies. He is the founder and managing partner of Wilson Associates and can be reached at docfranchise@gmail.com. or direct office 480.838.1641