One of the first and most important questions that most of us ask when considering to start our own business is where the money would come from? The answer for more than 80% of start-up businesses is bootstrapping. Indeed, according to Lahm Jr and Little Jr (2005), the overwhelming majority of entrepreneurial companies are financed through this highly creative process.
Bootstrapping typically involves the use personal savings, credit-card debt, loans from friends and family and other non-traditional forms of capital.
The risks and advantages of bootstrapping
The biggest advantage of bootstrapping is that you are the boss. For this reason, self-funding your business means you only answer to yourself. You are free to do as you wish with the direction of your start-up.
Some advantages of bootstrapping that are mentioned by Schinck and Sarkar, (2012):
- Easy way to obtain financing – you have full use of your money;
- It’s convenient – you can start your business whenever you are ready;
- Boot-strapping is associated with minimum requirements – no need to report quarterly financial results to investors or financiers;
- It doesn’t require the preparation and presentation of a business plan or collateral.
Disadvantages of bootstrapping:
- Bootstrapping may constrain revenues – because as the business starts to grow, more capital is needed;
- Personal risk – the financial risks to bootstrapping are huge, so owners must have a plan for moving forward advises Lloyd Martin (Escalon);
- Lack of networking – you may miss out on valuable networking connections;
- You will likely not be earning any money for quite a while.
Lastly, the advent of the internet and e-commerce has given thousands of people the opportunity to start an online business from home with little capital or financing needed. However, since about anyone can start an online business, the competition for visits and clicks are immense. Therefore you need a well written business- and digital marketing plan to get your business on the way…
Remember, you need a well researched and written Business Plan to get your business off to a good start!
Read also: Getting a Loan for Your Business
Lahm Jr, R.J. and Little Jr, H.T. 2005. Bootstrapping business start-ups: Entrepreneurship literature, textbooks, and teaching practices versus current business practices? In: Allied Academies International Conference. Academy of Entrepreneurship, Proceedings 11(2): 15. Jordan Whitney Enterprises, Inc.
Schinck, A. and Sarkar, S. 2012. Financial Bootstrapping: a critical entrepreneurship skill, Centro de Estudos e Formação Avançada em Gestão e Economia da Universidade de Aveiro, 20:1-24.