Can you self-fund your start-up?

Will the spare cash you have, be enough?

 

 

Plan your first move

Before creating a business, you must find your passion and your purpose. Running your own business takes energy and drive that most people never seem to have. To be successful, you need to start with an idea you are willing to put your all into.

Narrow your industry, business and community choices by your interests and expertise. Once you know these things, you need to extensively research how to provide quality products and services that will solve problems, frustrations and deliver on the wants and needs of your chosen marketplace.

As part of you first moves create a sound business model, business plan and budget. If you don’t know how to do these things, engage and advisor before you start. An hour or two with a practical and experienced start-up advisor can save you a lot of time, money and pain.

 

“A stitch in time saves nine”. Proverb

 

Find your first sale?

If you don’t have much money then your first and subsequent sales will be critical. Particularly the first sale as it sets your momentum and increases your enthusiasm and motivation.

It is a good idea to look for a customer who will buy from you as soon as you open the doors. Obviously the bigger the customer the better and if they have influence in your community you will be well on your way.

Accepting loans can be easy when you are starting out, but if you don’t have pay interest or make any repayments your decision making will be different. You will have to resist temptations and become very disciplined in your spending, but it can be well worth it not to have to put time into trying to borrow money and then to manage the financiers.

 

Look to your supplier’s support

While you may have to pay cash for you first few purchases, once you have convinced the supplier you are worthy of their support they will extend credit to you. The terms they are likely to offer you can be all you need to carry an adequate inventory to provide good service to your customers.

If you manage it well you can be receiving cash from your customers which mean you don’t have to finance debtors. And if your suppliers give you say 60 days to pay them, then you will have a very positive cash flow.

But be warned, pay your creditors on time and don’t use the positive cash flow to purchase items you can do without. Luxury items and holidays can wait until you have reached a profitable and sustainable level of revenue and activity.

 

If you must borrow money

Businesses that need capital but are unproven are a better fit for owners equity funding. Customers and revenue should come before any other debt financing. While this might be painful in the short term it will put your in good stead for the future, even if you have to take a nighttime, or weekend job to supplement your initial personal income.

The decision to self-fund or bootstrap a business isn’t always an easy one and depends on many factors and you may, in fact, need to take up a small loan. So before taking any loans or credit to start your business, here are some thoughts to consider:

Know how quickly you need to grow. The biggest downside of self-funding a company is that it can be slower to grow and acquire market share. Instead of going to investors for funding, you have to go to your customers for more sales. The cost of any research and development has to be paid by customers rather than investors.

Tie any loans to a specific growth plan. The turning point for outside funding comes when the business is growing steadily and positively, but it needs a boost to break through to the next level. Perhaps you will be starting a home-based business and that’s great but at some time you may need to find commercial premises and that might mean borrowing money.

Avoid personal loan guarantees. A personal guarantee means the entrepreneur agrees to pay the loan or credit back with their own personal money or assets if the business fails. That’s a risky proposition for you until the business is well established.

The benefit of bootstrapping and funding growth from cash flow is that you don’t have to give up equity or personally guarantee a loan. Are you willing to mortgage your house for a business that isn’t proven? If not, don’t guarantee it to a bank, either.

Avoid unnecessary expenses. As a brand-new business owner, never spend your money on unnecessary expenses and never spend a penny unless it is going to increase revenue. Even though you may not be financially savvy, you should learn to allocate your budget to the most necessary parts of your business. Only buy what your business needs the most. One of those things will be a website so prospective customers and suppliers can find you, which need not be expensive.

Line up lenders well before you need a loan. Start financial relationship as early as possible. The last thing you should be doing is rushing into a bank because you have a cash flow crises and you have no relationship or track record. It never hurts to ask a financier to help you decide when your business will be ‘Investor Ready’.

Understand loans can limit business flexibility. Being tied to loan terms and conditions may mean you won’t have the freedom to make critical adjustments or changes to the business as you might want.

 

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Personal Experience

You don’t have to wait for the perfect moment to start pursuing your dreams of a new lifestyle business. Just start doing things on purpose and seek practical advice from day one.

Starting a business today is much simpler and good advice is more readily available than it was when I started my first business on a wing and a prayer. Entrepreneurship, planning and value chains, content marketing, social media and even the Internet was unheard of just a few short years ago.

Most successful business owners aren’t running the first business they started, they’ve learned how to fail forward and are on their third, fourth or even tenth business. Which means always keep the end in mind.

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