Funding Your Startup without Outside Investors
When starting a business, funding will be one of your number one concerns. To get things going, you will need funding, and probably from more than one source. There are a couple of ways to get that funding. One is to self-fund your enterprise, and the other is to seek outside investment.
With every type of outside investment, there are typically some strings attached. Investors want a percentage of profits or when the business is sold or goes public. Others give you a certain amount of time to pay back loans or make a percentage of profit, or they can take over your business from you.
Taking on business partners means sacrificing at least some control over business decisions and the direction the business will take. These partners will have at least a percentage of say in the way you do things. You will have to determine who has the deciding vote, and what recourse they have if there are disagreements.
It is because of these factors and many others that entrepreneurs often opt for self-funding. But how do you fund your startup without outside investors? Here are some tips.
Save Some Money
The first method is to save some money. The more you save, the better off you will be. You should have at least six months of your personal living expenses and the money it will take to run the business in the bank before you get started. That is quite a bit of money.
Often, founders only have part of this money in the bank, and even hardly any of it. Savings is a hard way to fund your business without any other sources, so usually you will take some money from your savings for your startup, and the rest will come from other sources.
The key is that you have a personal emergency savings fund that you do not touch. This is to cover your family and other expenses in the case of a true emergency. This is money you should not dip into unless necessary and even starting a business is not one of those reasons.
You should also leave retirement savings alone too. You can borrow against them: that is sometimes a viable option, but you should not withdraw from them. Tax penalties and the lost income in your future is not worth the risk.
You may have to go into debt to fund your business startup. That is okay, as most startups do. The key is to borrow wisely. While you could ask your family for money, and some entrepreneurs do, or even take them on as partners, the risks involved and the obligations you feel can be akin to those same risks associated with outside investors.
Instead, you can look at taking out either personal or business loans. At first, you might have to apply for personal loans, as your business will not have a track record or a credit score of its own. Eventually you will be able to transfer those loans to your business and help your company build their own score.
In some cases you can use credit cards, although this is not always the best choice. Limits are low, interest rates are high, and you put your personal credit at serious risk if you have to default for any reason.
You can also look at secured loans, ones backed by your personal assets or those of the company. These loans are usually lower interest rates but come with their own risks in case you have to default. Still, they are a good option for many businesses and they are used frequently.
Another option is to start small. If you start small and reinvest the money you make, you can often stay relatively debt free for a long time. When you want to grow faster, you might still have to borrow, but initially your startup costs will not be outside of your means.
This sometimes means you will have to work a day job for a while, but the tradeoff is that you have exclusive control of your business and no outside investors. This is often worth the price.
There are a few simple ways to increase the revenue of your business. The first is that you can raise your prices and increase your profit margin. This sometimes works well, especially if you started with lower pricing to attract customers and are still below standard market pricing for your goods or services. However, it can backfire and lose you customers if you raise prices too much at one time.
You can also increase the number of customers you are adding. This means being creative with marketing and drawing in more paying clients. However, a strong customer acquisition push can really add to the revenue of your business, and if you can do this early, you can increase the rate of your bootstrapping efforts and even pay off debt early if you have acquired it earlier.
Decreasing costs is another method of increasing profits. This is often difficult when you first start out, but as processes become more efficient or you find better vendors to purchase inventory from, it can result in serious increases in profits. The key is to always be looking for opportunities to reduce how much it costs to make your product or provide your service.
You can fund your startup without outside investors, but the process will not be easy. It will be easier if you follow these steps, and save, borrow wisely, start small, increase your revenue, and work to reduce costs. The control you have over your business may just be worth it.