Wise Startup Blog

Starting a new company, have no money? Bootstrapping is learning to finance your company without spending major cash. When you’re first starting your business empire, you need to know how to produce the most value while spending the least amount of cash. In the early days of a startup, cash flow is the most important factor, and every investor will be interested in your burn rate and how you can earn them the best return on their money.

Maximize Shareholder Value

No matter how big your company is, the goal is to maximize shareholder value. Whether your company is Dell, and you have a billion dollar market cap or you run an internet music startup, like Grooveshark, your goal is to deliver the best return on investment for your investors. To do this, you have to produce the lowest burn rate possible, and deliver the best returns. While I won’t go into how you can maximize your revenues on this post, I’ll go over how you can cover your costs best and bring in the most value while spending the least amount of cash.

Cash Flow is King

Cash flow is king in a startup. Understanding how cash flow operates is essential, so we’ll first cover exactly what cash flow is, and how you can maximize it. Whenever you have money coming into the company or you have money coming out of the company, you are spending cash. There are different levels of cash and different levels of liquidity and urgency that different types of cash carry. If you’re spending money on a credit card, the urgency isn’t the same as leaving $50 cash on a business lunch. When spending money on a credit card, if it’s a charge card, you have 30 days (or until the end of the month) before you have to pay back that money. If it’s a typical revolving credit line, you have until the end of the month to pay off the minimum balance, and essentially forever before you have to pay down the entire principle, so credit cards provide you an advantage when it comes to maximizing cash flow.

When you pay for expenses with cash or from your debit card, you’re basically throwing away your money. When starting a new company, bootstrapping is essential, and you need to learn to maximize every dollar you have. So throwing down cash on purchases is like putting your company 1 month in the hole. Never make a purchase with cash or debit that you could be making with a credit card.

Bootstrapping Rule #1: Get the Best Credit Cards

Now that you know you should always be using a credit card, you need to make sure you have the best credit card. All good bootstrappers know that your purchases on credit cards should be contributing to the overall benefit of your business. Good credit cards to own include cards that give you bonuses on Airline travel, Gas rebates, and business-purchases bonuses (like using your card at Fedex for shipping). Good credit cards can net you an extra 3% in bonuses, and they definitely stack up quickly. Imagine you’re spending $10k per month on business expenses, that’s an extra $300 per month you could be contributing to gas or it’s an extra airline ticket to San Francisco to raise money. Here are some great business credit cards:

CitiBusiness Card
0% APR on Purchases AND Balance Transfers for 12 months*

Amex Platinum Business
0% Intro APR for Purchases for 12 months.

Citi American Airlines Advantage
Earn 25k miles after first $750 in spending

Pay Your Employees First

When it comes time to pay your bills, always make sure to pay your employees first. This is a simliar rule to planning for your retirement. They say to always take 20% of your income, and automatically deposit it into a retirement account. This same principle applies to building your startup business. Your employees are the lifeblood of your company, and you need to make sure they’re healthy and motivated to keep working.

Your employees are the lifeblood of your company, so when it comes down to payday, make sure you postpone those credit card payment and pay your employees, because if you don’t have any employees you can’t generate any revenue, and all your bills don’t get paid.

When starting a business, it’s important to realize how to best spend your money, and bootstrapping is key. When you have to spend money, spend money on the right expenses, and when you spend money, spend smart money, and that’s credit. Never use cash or debit cards when you can use credit cards.