You’ve got an incredible new business idea and you need financing. It’s as easy as a quick trip to the bank, right? After the bank’s loan officer manages to stop laughing enough to talk, he may suggest you try bootstrapping until your business is more successful.
Before you head for the closet to find that ratty pair of hiking boots from last summer, I’d better tell you that bootstrapping actually has nothing to do with shoes. In business, this term simply means starting a new business and keeping it running without financial backing from a bank or investor. Instead, you fund the business yourself and only buy the things you absolutely most have. (Despite what the guy at the office supply says, an executive leather swivel chair is rarely a must.)
I know what you’re thinking – If I could fund the business myself, I wouldn’t be asking for a loan! Actually, even most wealthy entrepreneurs ask for loans or find other investors when they are starting new businesses, because they don’t want to tie up their money.
How Bootstrapping Works
Many people use credit cards to fund their new business. Some simply pay off one credit card with the other as the monthly bills roll in. (Paying one credit card with another is not a good idea, by the way.) Others try to pay at least part of the monthly balance with household money, which brings up another source of income-friends and family. Sure, finding a big investor is hard, but maybe you can convince good ol’ sis to vacation in her backyard this summer and lend you the three thousand she was going to spend on a luxury cruise. Just don’t overdo the borrowing; you don’t want to create hard feelings.
Once you have a way to purchase the necessities, be creative with the rest of your needs. Comparison shop, ask for specials, or trade services with someone else. For some terrific ideas on how to make your money stretch while bootstrapping, check out Secrets of Bootstrapping.
By the way, I’d love to hear your ideas for starting a new business on next to nothing, and I’m sure everyone else would, too.
Originally posted on August 9, 2007 @ 3:52 pm
I’m a big fan of personally financing businesses in the early going. While I completely understand people’s hesitation to put their own money on the line, let me ask you this: are you not confident enough to bet on yourself?
If not, then maybe you shouldn’t be heading down that route…
Chris,
Very true. Also, I think a lot of people simply try harder when they are using their own money.
I know someone who received over $50,000 to start a business that could easily have been started for much less-his office was in his spare bedroom and he did most of his work on the phone. A year later, he has given up his business and is doing delivery work.
I am for doing things as cheap as possible. My fax is eFax, my office phone is a Skype line, so is David’s. I have incredible simple business cards from Vistaprint. I use Paypal and Quickbook’s Merchant Processing for credit card payments. You can still run a professional operation without a huge office, a huge staff, or a bunch of other overhead.
Matt
Matt,
And Vistaprint does beautiful work. Some people say that using them is unprofessional, but I disagree. If they say this to me in person, I whip out one of my business cards and ask them to show me the card from their “professional” printer. 9 times out of 10, mine look nicer!
I just print my own business cards .. and while I try to keep costs down, realistically when collections are good I go out and do a major shopping adventure of supplies – to stock me up in times when collections are not so good.
Regarding the bootstrapping tips and article, I would never recommend kyting credit cards and banks, although I do that many times myself. It just gets harder when your non-business activities cross-link with your business cash flow (new kitchen floor, basement renovations, etc) ..
Bartering is a good tip, at first but it is such a time waster as you get busier and personally, I’d just rather give those freeloaders a 50% cash deal or something, and not do the work the next year then, waste my time or theirs. I once had pity on a friend of a relative who claims to be an organizer and I did a contra one year to organize my office. Took 10 minutes because I’m already organized. Cost me $200. The next year, she wanted to contra organize my basement – but required me to do 50 hours cleaning and organizing before the organizer got involved … I only barter for personal goods now – nothing business related.
Start-up Tips? The best thing that I ever did is was get a HELOC (Home Equity Line of Credit). The thing is with most other debt, whether it is term loans, credit cards, etc .. as soon as you pay it off – it’s possible that it might not be there again. E.G. you might have to reapply for a loan, or get a new credit card, etc. etc. With my HELOC, I can pay it off anytime, and it’s always there, because its secured anyway by my mortgage company. Currently, it’s up to the limit as I shift money from higher paying interest rates (or to avoid interest and penalties) and try to reduce everything else. We were lucky when we first applied .. we found one offering at prime plus zero percent, and appraisal and admin fees were thrown in for switching – I asked my bank manager to match it, and surprisingly to me – he did. It never hurts to ask.
Speaking of it never hurts to ask … the purple alternating comment color is annoying and irritating on the eyes .. any way you can just twig your template so that all comment boxed are the same color?
Hi Hart,
A home equity line of credit does provide a lot of readily available money, but most people just starting a business don’t want to risk their homes. I do know someone who used this method with no problem and if you can’t find any other way to fund your new business and don’t mind taking a risk, it can work.
You bring up a valid point with bartering – don’t do it if you aren’t getting something valuable back.
I’ll have to check on the purple alternating comments to see if they can be adjusted.
I sent a note over to Chris, our lead designer, about the alternating purple comments. katelyn, you can drop a note in the support forums as well about this.
~Matt
Along the lines of what Chris said, avoiding getting into debt is a wonderful way to avoid making debt payments. With interest rates still quite low, it’s really easy to take on more debt than you can manage if the interest rates go up. So, if you happen to be able to finance the business without borrowing money on which you have to pay interest, that’s one less bill each month that you have to pay!
Alex,
That’s an important point. If you do borrow money, make sure it is at a fixed rate.
Katelyn