CPA Firm Suggests Bootstrap Financing

PRESS RELEASE: For immediate release 9/1/00
                            
CPA Firm Suggests Bootstrap" Financing

(Dallas, TX) Robert W. Scroggins, CPA, suggests bootstrap" financing techniques for businesses that cant get financing and need to generate extra cash on their own. Scroggins, a Dallas, Texas CPA and consultant, says, bootstrapping requires no outside consultants, loan applications, or business plans. It does require time, effort, and discipline on the part of the owner." Perhaps the easiest bootstrap technique is that of taking maximum advantage of trade credit from vendors where allowed. Scroggins notes that many vendors will extend regular trade customers credit for 30-90 days without charging any interest so that their customers can get paid first."

Factoring accounts receivable is a common bootstrap financing method that consists of selling accounts receivable to a buyer at a discount. Some factors assume complete responsibility for collecting and buy the accounts "without recourse" from the business if any accounts prove uncollectible. There are pros and cons to factoring. Some business advisors recommend that it be used only as a last resort or in cases where the factor can completely replace an accounts receivable department," says Scroggins.

Scroggins regards customers as a valuable asset that can be used for bootstrap financing. If a business needs financing in order to fill an important customer order, it should consider asking the customer to write a letter of credit to help obtain the financing." In some cases, says Scroggins, customers can also provide direct financing by advancing money up front.

Real estate or equipment can be leased instead of purchased. This reduces business startup costs because the expense to get into a lease is not as much as an outright purchase. Leases may also be negotiated to arrange payments that correspond to seasonal peaks or growth patterns. Many suppliers of specialized equipment will finance sales of their equipment. Title may or may not pass until the equipment is fully paid for.

Managing cash flow is another bootstrap technique that has many applications. One example cited by Scroggins is buying carefully when starting business in order to reduce the amount of money required for operations--such as locating in a modest office instead of an overly expensive one. Another example is verifying the credit worthiness of new customers initially instead of having to spend time and effort on collection activities later. Scroggins suggests putting poor credit risks on COD. His favorite cash flow management technique is that of simply justifying all expenditures. For large customer orders, you might consider billing before final delivery--such as milestone billing or progress billing. You should also use late-payment penalties and early payment discounts where appropriate." A more sophisticated example noted by Scroggins is that of using geographically dispersed deposit lockboxes for businesses with customers from all over in order to speed up collection and use of funds.

These are only a few common bootstrap techniques. In the final analysis, bootstrap financing is nothing more than being tight with your money, getting good value for it, and taking advantage of whatever is out there to help with good financial management, conclude Scroggins.
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Robert W. Scroggins, CPA, was founded in 1984 and is located in Dallas, TX.
For Further Information contact Robert W. Scroggins, CPA
E-mail: rscrogg@atexascpa.com / Web: http://www.atexascpa.com
Tel. (214) 941-7021 / Fax (360) 838-0943