To Get Money For Free
Imagine you have a cupcake business. Yes, we’re back to cakes again.
You take the ingredients for making cupcakes, mix them together, bake them in the oven that’s in a kitchen you have rented, and sell them for a profit.
How much profit did you make? Well, you know this already: the difference between your sales and all of your costs. That’s easy isn’t it if you used all the raw materials you bought and sold all of your cupcakes. Sales minus costs equals profits.
How much return did you make on your capital? Well, however much capital you used to do this.
Imagine if you didn’t need any. Let’s say your cake mix supplier said you could pay them next week, and your kitchen rental let you pay next month. You would be able to do a whole week of cupcake sales before you needed capital to pay, which you could then do with your sales revenue, saving up your profit for a month to pay your rent. The only limit to how much profit you could make is how many cupcakes you can sell. You could hire staff that only need to be paid a month later…
That might sound impossible but it’s not. It is possible and some businesses do it all the time. They’re called negative working capital businesses, and if you don’t have much money, you should work out how you can create one.
- Sell to customers who pay you cash
- Hire staff who only get paid after you get paid
- Find rental premises that don’t need a pre-payment
- Get a supplier who will let you pay later
- Use up all your inventory, so you don’t have stock left
This substantially reduces the risk of your business start-up, and enhances the return on your capital and effort.
The opposite is more common: paying for stock up-front that then sits for ages in inventory, while you are paying rent and staff and generating insufficient sales.
The lack of cash to pay suppliers is a key reason for small business failure. Arrange terms, whether it be via credit card or direct terms with the supplier, and you can fund part if not all of your business for free. At the very least, your machine will be much more efficient.
Structures like crowdfunding, where customers buy a product before it’s made make this version even more extreme, and make it even more possible to launch a business with zero capital.
This is how you can make your machine more efficient.
Next you need to recognise that although it’s a machine, and it isn’t you, it is a People Machine.