Are you seeking startup financing for your small business? Your best bet may be bootstrapping. According to recent data from the Federal Reserve’s 2010 Survey of Consumer Finances, reported by The Wall Street Journal, over 70 percent of U.S. startups use the founder’s personal savings or assets as their main source of capital. Only 6 percent of startups were financed by personal loans; a mere 3 percent obtained business loans; and an even smaller percentage found financing from investors or credit unions.
These facts may be sobering for would-be business owners who think startup capital is easily available from banks or investors. I’ve got news for you: Even back in the go-go dotcom days, getting startup financing from banks was never easy. Nor, for most businesses, was finding investors. And neither has gotten any easier in today’s economic turmoil.
So what can a startup entrepreneur do? As the name suggests, “bootstrapping” your business means pulling yourself up by your bootstraps. Start your business with the capital you have available to you, and put any revenues from the company back into building the business.
What does that mean in reality?
Take stock. How much money do you have or can you pull together? Tap into your savings, sellable assets like collections or cars, even retirement plans if you’re young enough to pay the money back.
Start the business you can afford. Think of a way to do what you want on a smaller budget. For instance, instead of opening a retail store (with the attendant rent, equipment and insurance issues), start a small ecommerce site you can run from home. If that eventually becomes a retail chain, great! If not, you haven’t gone into debt.
- Put revenues back into the business. For many entrepreneurs that means not taking a salary, or taking the bare minimum. Be ready to cut your expenses to the bone your first year or so in business.
Bootstrapping can be painful at first, but when you’ve built a successful business this way, you’ll have the satisfaction of knowing you don’t have to share it with anyone, answer to anyone, or owe anyone anything.
A SCORE Mentor can help you run the numbers on your business idea so you know exactly how much it will cost to get up and running. Visit the SCORE website to get matched with a Mentor or get online advice 24/7.