The majority of businesses do not receive formal investment. In fact, 99.962% of all businesses are started without a formal investor or venture capitalist, according to a Global Entrepreneurship Monitor report. In addition to formal investment being rare for businesses, the global recession led to a credit crunch that has affected many entrepreneurs’ ability to access credit such as a business loan.
Most entrepreneurs are forced to self-fund their business, which is also referred to as bootstrapping. The term bootstrapping comes from the book, The Surprising Adventures of Baron Munchausen, in which the main character uses his bootstraps to pull himself out of a swamp.
Preparing to Bootstrap a Start-up Business
Before bootstrapping a start-up business, it is wise to write a business plan with clear goals. Having a plan means there are goals to work towards from day one and the plan acts as a guide to steer the business in the right direction. Any entrepreneur will agree that starting a business can be overwhelming. A start-up checklist is beneficial, especially for entrepreneurs who are starting their first business.
In preparing to bootstrapping a start-up business, one should also eliminate any personal debt outside of debt incurred to start the business. Personal debt can be a huge burden and add additional stress to the regular stresses of starting a business. Eliminating personal debt also frees up credit to use for the business if needed.
Ensuring a Dependable Stream of Income
Many businesses will not make money right from the get-go. If the business is not making money, the entrepreneur is not making money which makes it important to keep a stream of dependable income until the business can provide a regular salary.
Dr. Jeff Cornwall of Belmont University started a health care business in the 1980s with his personal savings. It took two years before he and his business partners could receive regular paychecks from the business. “If your business can be worked on during any time of day, find a day job that can pay the bills. Or, be prepared to take on an evening job, such as waiting tables or bartending, to help create a bridge until the new business brings in a steady income,” says Cornwall on Belmont University’s blog, The Entrepreneurial Mind.
Bootstrapping Your Way to Success
A bootstrapping entrepreneur must focus on needs and only spend money on what is required to get the business off the ground. Think of creative, low-cost ways to build the business. Fortunately, online marketing and leveraging social media can get a business much exposure on a small budget.
Blogging is an affordable way to build an online presence. For tips on starting a successful blog, read How to Start a Blog. Twitter can be used creatively to sell products, garner feedback, and provide customer support. StumbleUpon allows businesses to set up a targeted, online marketing campaign to drive traffic to a website or blog at a cost much lower than other platforms like Google AdWords.
Throughout the process and beyond, it is imperative to pay attention to cash flow, the lifeblood any business. Track inflows and outflows of cash in a statement of cash flows. Billing cycles should be short for bootstrapped businesses and customers who pay early should be rewarded to encourage quick payments in the future. With growth in mind, invest early revenue right back into the business.
Bootstrapping a start-up business can be challenging but it remains the most common way for entrepreneurs to launch a business. The key to successfully self-funding a business lies in careful planning of both a personal life and business venture.
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