Self-funding a start-up is better than taking loans

“Stay self-funded as long as possible”- Garrett Camp, Uber

There are so many uncertainties that one faces while starting a business. It takes time, energy, money, and yet the one certainty an entrepreneur needs to have is the certainty of where the capital is coming from. Outside lenders if not family don’t have a vested interest in the business. Self-financing gives one much more control than other funding alternatives. It takes immense courage, vision, and bird’s eye for detail to get an idea off the ground, but the return on that investment of commitment is owning almost every if not every aspect of a company.

Let’s look at the importance of self-funding

  • Greater Control

As established before, there is more flexibility. That also means that more amount of work to put in in the early stages, but that means retaining maximum profits in the future.

  • Sufficiency tops over-ambition

Since capital to the business will likely be limited. The emphasis will be on a self-sufficient business model wherein expenditure doesn’t exceed income.

  • Development of core entrepreneurial skills

At the heart of a business idea, is the ability to create a winning offer, sell it, and market it. Eventually one will hire sales and marketing teams but if one can’t craft a clear message to sell a business, the best marketing forces won’t be able to fill that gap.

Ways of self-financing a business

The easiest, most cost-effective way yet risky is using personal savings. The second method can be to turn to friends and family. This is one of the most common ways a small business gets the funding they need to start because only a small percentage of small businesses are able to get approved for a standard bank loan. For those with little cash and poor credit, friends and family may be the only option.

Another option is crowdfunding. The idea behind it is why give away equity in your business when you can get money from people who simply want to see your idea come to life? Bootstrapping refers to the practice of using earned revenues to grow and expand your business. Since one is funding expansion with the revenue from the business, there are no investors to worry about or loan payments that drag on cash flow. “Bootstrapping works well when you can deliver the service or meet production requirements at the early stages of the company, and then add more employees or business expenses as your capacity to meet demand diminishes.”

Drawbacks to keep in mind while self-funding

  • The strain on Personal Life

Using one’s own money might put a strain on personal life and in some cases, it might be difficult to cover living costs if an entrepreneur is all in.

  • May lose out on Networking

 Investors, venture capitalists provide mentoring and networking opportunities that might be essential as it brings in a fresh and experienced perspective.

Someone rightly said “Self-funding a business is not for the faint of heart.” It requires one to think out of the box and get creative with finances to keep the business afloat. Despite the long and bumpy road, it is worth the effort as it is the epitome of individualism and optimism.

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