various internal capital sources that entrepreneurs can tap too, but self-financing happens to be the most common among new comers. If you’re new to the industry, then here’s a list of advice on how to smartly self-finance a startup company:
1. Only take calculated risks
You shouldn’t fear the unknown. Building your business involves taking risks, thus as an entrepreneur, you must be ready to go ‘all-in’ when necessary. But, this does not mean you should immediately take risks that come your way. Only take ‘calculated risks,’ as it helps you measure the downside and the upside of the actions on your business. There are some smart risks that lead to successful startups:
- Create and implement a modern and realistic business model
- Focus on addressing customer problems rather than technological solutions
- Apply metrics to track results of your initiatives, growth, and its success
- Hire the best employees and offer competitive incentives
- Do not depend on conservative revenue and opportunity predictions just to reduce risks
- Be a leader in your own right rather than emulating others
2. Invest in human capital
Building a startup demands passion, not only from the founders, but also from every member of the team. When choosing the right employees, consider getting those who possess the skill sets you lack. Being a small company, you have to make sure that everyone is doing something different to keep the efficiency level at its peak. We understand that there are some expenses that you cannot afford to overlook, but paying employees the right and equal compensation is necessary to keep your business a success. If you cannot afford to pay them immediately, provide alternative compensation, such as stock options.
3. Overvalue your starting capital
As a bootstrap entrepreneur, you must be prepared financially for the initial step that requires a big chunk of your savings. You will need more cash than expected as a starting capital to cover unanticipated bills. In pricing your initial capital, you need to foresee the business expenditures for the first three months – thus the amount has to be overestimated. Most people expect their sales to be high, underestimating other costs that alter its result and decreasing the capital at one point. It’s best to stick to a higher, overestimated starting capital than experience any financial problems early on in your business venture.
4. Be an expert in your line of business
Entrepreneurs need to know the business, the market, and the industry – all of it inside and out. It is not enough that you know the basics and how to manage an organization; you have to understand various technical aspects, such as the target market, your competitors, and your unique selling point. In addition, since you are financing your own startup, you will have to analyze the capability of your business to survive a volatile economy. In America, FXCM said that oil price affected the economy greatly, impacting almost all businesses, especially startups. As an owner and investor in the company, you have to evaluate the capability of the business to stay strong even in a challenging economy.
Here are more reasons why you should consider bootstrapping your own small business:
• Not wasting time raising funds. You are now more productive, focusing your energy on other parts of the business, such as production, hiring, and improving your products. Realistically, a startup owner will need 50 meetings to garner as much as 5 investors.
• Complete control. Self-financing your startup allows the entrepreneurs to have complete control of the business, by managing the production flow, marketing decisions, and sales efforts. This allows you to grow your business the way you foresee and plan it to be.
• More focused on revenue. For investors, they often fear losing their investment and when a company is being challenged, they generally decide to pull stocks. This leaves the startup struggling for assets and capital. But, as your own self-investor, you are more focused on generating revenue than losing it, which 99% of businesses aim for.
Once your startup expands and matures you must prepare for the next stages of growth. Often, leaders lose control at this phase, when they have not properly established the necessary resources required to grow appropriately. What other tips can you share with aspiring startup entrepreneurs out there? Leave a comment below.
Michelle Ackerman has been a reliable blogger, featured by various technology, business, marketing, and finance websites, for several years. She is also an active traveler who loves hiking and trekking.