5 Things you need to know about cash flow: partner, barter, collaborate
June 30, 2014
We often go into a brand new business start-up having to buy a lot of new things from equipment to websites, from business cards to brochures and depending on what business you are trying to establish the costs incurred with infrastructure can potentially be large.
One of the most effective things a small business can do to better manage the bottom line is by trying to share some of the load in terms of costs early on.
If we just take a look at the United States as an example, and keeping in mind that the data is fairly consistent with a lot of developed nations when it comes to business start-ups, there are currently (approximately) more than 30 million small businesses with data showing as far back as 2012 that about 500,000 came into existence each year (which is about one new business created every minute).
The truth is that businesses can often succeed much more so as a group as opposed to single person trying to swim against the tide and this is why partnering, bartering and collaboration can be so important.
First of all consider this – if you had the chance to create a win – win situation between yourself and another business wouldn’t you take it? The great thing about partnering is that if successful it’s not only about sharing the cost load it’s also an opportunity to add another potential source of referrals in terms of clients. The biggest challenge that many have is approaching partners and establishing trust.
Here are some simple tips you can follow:
Look for a business in your industry that may not be competitive with yours: the best partnerships are organisations that operate in your industry but not as a competitor. For example, there is no real point in two cafes working together on the same street or two consultants who have exactly the same business offering. However, if you are a café then it may make sense to form a strategic partnership with a particular coffee supplier who may be able to give you better discounts or access to co-marketing funding.
In the case of consultants while there is no point in trying to establish a partnership with a direct competitor it may be the case that someone with a particular skill that is loosely connected to yours could be a good idea. For example, let’s say you are a management consultant then partnering with a cash-flow specialist or accountant could work because you could provide each other referrals related to each of your flows of a work in a particular project.
Consultants and start-up IT companies are actually great examples of where partnerships can also extend into helping spread the load in terms of day to day operational costs. For example, one of my start-up companies operated out of a 38 SQM office in the Central Business District of Sydney (Australia). The basic costs of the office were rent ($1100 per month), internet ($80 per month), power ($100 per month) and phones ($100 per month) which came to approximately $1380 per month.
On top of that I had some annual costs of insurance ($500) and incidental costs of a further $1000. This bought the total of my month to month costs to $1505.00. Now that may not seem like a lot of money in the general context of running a business (it was a consulting business) but in pure start-up mode every dollar counts.
The office had room to house four people in an open plan with a divided meeting table at the front of the office. I decided to put an online advertisement up seeking “other like-minded” professionals to come on board – I mean who didn’t want to have an office in the CBD in one of the world’s global cities? In fact there are thousands of people who go to serviced office arrangements that can cost an arm and a leg once all of the added value costs come into play such as taking voice mails etc.
My offer was simple – have an office, a desk, the internet and some pretty cool company all for the price of $550 per month or $137.50 for a four week month. I had just over 80 people enquire and I settled on three after we all decided we could work in the same space together. In doing so we reduced the amount down from $550 per month to $345 which basically freed up an additional $1,000 per month for my own start-up.
We had a roster system that also showed who was going to be in the office and when and if someone needed to use the whole office for an important meeting we had an agreement that we would work from the Gloria Jeans coffee shop down the road (it also helped that for the price of a cup of coffee you could also get around three hours of free internet! – in fact when I was done at Gloria Jeans I would basically stand outside McDonalds with my iPad and connect to their free WIFI to download the rest of my emails or do some work!).
More importantly we found ourselves bouncing ideas off each-other, sharing insights into various industries and even helping each other with pitches. Every second Friday we would end our day at 3pm, sit down for a few afternoon drinks and talk nonsense for a few hours. In actual fact the partnership was important for a less well understood reason – you see working as a business start-up or a small business often leads you to become isolated and lack human contact.
One of the people who was in that partnership with me used to work from home, but found himself fairly much alone for the rest of the day. When he joined us that lone trader feeling went away and it was like he was a part of a team. We still stay in touch to this day and several of us actually joined together to form a new venture – such is the power of partnering.
So, identify potential partners that can help share the operational cost load, act as a source of potential referral business and importantly, ensure that you keep your sanity through having daily human to human contact!
Barter and collaborate
So bartering I hear you say? It’s not often prescribed anymore as a way of managing cash-flow but also as a tool to reduce general operating costs. Put simply bartering comes from the Latin term “quid pro quo” (yes sadly I took Latin at school for a year and this was pretty much the only thing I took away from the lesson) which means “something for something”.
Surely you have heard the stories about the doctor who saw patients and was paid in everything from chicken to pigs? In fact wasn’t it Michael J Fox who starred in Doc Hollywood and came away with a pig? Or what about the age old classic of Jack and the Bean Stalk who traded his livestock for magic beans? Over the years bartering has kind of been lost in translation and mistaken just for free-stuff that people can now obtain thanks to websites mentioned earlier in this eBook.
That said, bartering can be a great tool where you can establish a mutual need between two businesses – the need being you have something they want and you need something they have. By way of example in a start-up I ran our building manager needed a carbon emissions audit completed and so we negotiated a deal where we would do the audit at no cost by the building manager writing off three months of rent.
In another example we provided mentoring to a fledging printing start-up business and in return they printed and supplied our brochures and business cards for free. Then there was the lawyer who wanted to run a seminar on small business management so, in return for speaking and not charging a fee I did a deal whereby they provided our business with 40 hours of free legal advice that could be taken up during the course of the following 12 month period.
In all of these cases we established that there was a mutual need and while there was a labour and material costs to carrying out the work the cost savings were significant. I also found there is no harm in asking the question and that it was okay to barter and exchange services where there was need and demand.
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