Monthly Archives: November 2017

Tips for Self Funding a Startup

Funding is one of the biggest challenges most entrepreneurs face. Whether they take out loans, crowdfund or accept investments, startup founders often find that they need some kind of outside financing to make their business dreams a reality.

But some entrepreneurs choose to self-fund their operations, investing their own money into the business. This is known as bootstrapping, and if you have the resources to do it, you will benefit from complete financial and creative control over your business. There are no equity stakeholders demanding that you move in a certain direction, or lenders looking for their loan payments each month.

The downside, of course, is that your business budget is dictated by your own personal finances. Bootstrappers are on the hook for every last cent invested in the business, and without the right financial-management skills, you could end up driving yourself into serious debt.

If you’re thinking about funding your startup out of pocket, here’s some advice from business leaders on how to make it work.

The advantages of bootstrapping
Any financing path comes with pros and cons, and bootstrapping is no exception. It’s true that this method will put severe constraints on your budget and increase your personal liability, but there are also plenty of advantages to self-funding. Our expert sources weighed in on why bootstrapping might be a good idea for you:

“Bootstrapping allows an entrepreneur to have complete control over your business without sharing ownership with outside investors. You can manage the pace and iterations of your product, marketing and sales efforts, whereas outside investors may push you to pursue revenue before your product is ready to go to market.” – Bob Johnston, CEO of SponsorHub, a sports and entertainment analytics company

“A bootstrapping founder can prove value without having to give up equity for expensive money. You give yourself the shot of actually driving revenues and greatly increasing your valuation before funding, and maybe never taking money, which would be the best thing a business can do.” – Andrew Heckler, CEO of content marketing and native advertising tech company Hone

“You don’t need anyone’s approval (except yours and your partners’) to spend your money in support of a certain direction or initiative. You’re not subject to the whims and influences of investors who pop in and out of your business without the day-to-day knowledge you’ve got as the leader. You’ve got the freedom to add people to your team as the cash flow can support it, which means you don’t over-hire and then have to let people go.” – Bryan Miles, CEO and co-founder of business process outsourcing company Miles Advisory Group

“Bootstrapping allows you to focus on the essentials. Having a massive sum of money and investors demanding that it be spent can lead to waste. When bootstrapping, you learn to be more analytical in terms of what you spend money on. Learning this skill is crucial to any entrepreneur.” – Endri Tolka, co-founder and COO of YouVisit, a company that provides virtual tours and virtual-reality solutions

“Bootstrapping forces creativity. It drives you to work efficiently and intelligently in order to maximize profits and fund future growth, and to manage that growth carefully.” – Mark Buff, CEO and founder ofHDTV antenna maker Mohu

Building a business on a budget
To make bootstrapping work, you need to be financially disciplined. Here are a few best practices to help make your self-funded startup successful.

Lower your hiring costs (at first). When you’re pouring your own money into your business, you’ll want to keep costs as low as possible. This might mean wearing more hats than you expected, at least in the early days of your business. Buff advised learning everything you can about all aspects of business — such as accounting, product development, Web design and advertising — so you can hold off on hiring someone for these tasks for a while.

Bankroll Your Business While in Personal Debt

Depending on where you are in your life and your career, you might be facing a little — or a lot — of personal debt. Many would-be entrepreneurs owe money on credit cards, student loans, mortgages, cars or all of the above, and these heavy outstanding balances could put their dreams of business ownership on hold.

Quitting your day job to start a business when you’re thousands of dollars in the red is probably ill-advised, but carrying debt shouldn’t prevent you from getting your business going. Although it’s not an easy path, it is certainly possible to become an entrepreneur under tough financial circumstances.

If you’re looking to start a business while you’re in debt, here are a few smart steps to help you minimize startup expenses and keep your cash flow steady.

Explore your financing options
If you’re carrying a lot of personal debt, your monthly cash flow is probably not optimal for funding a business. There are a lot of options for business owners in your position — crowdfunding, alternative lenders, credit-card financing, etc. — but each choice comes with pros and cons, and you should be thoroughly understand what’s involved before moving ahead.

For example, Ethan Senturia, the CEO of business financing provider Dealstruck, said affordable financing options (i.e., loans and lines of credit with a lower interest rate) almost always requires a personal guarantee from the business owner.

“Even though you can get a business loan with a heavy personal debt load, most small business lenders will ask that you personally guarantee repayment of the loan in case your business can’t make the payment,” Senturia said. “This could add a heavier burden on your already heavy debt obligations, and could add stress to your personal life. Financing that doesn’t require a personal guarantee … is very expensive and can significantly strain your new business.”

You can also probably secure additional personal credit cards for your business, but Senturia doesn’t recommended this, as these cards will not help you build business credit, and will instead hurt your personal credit.