Have you ever tried to get funding for your business, but the conditions you’re given seem like your great grandmother’s thumbprint? When this happens, one of your options may be to launch your business idea with your personal savings. We’ve provided a guide to help you:
What a Self-funded Business Looks Like
A self-funded business gives its owner a measure of control. It is not a bad idea to have investors or Venture funding but, Venture Capitalists(VCs) may exert control over their investments, by making regular demands of the business owner. In a self-funded business however, you are not obliged to share details or accede to demands.
Using personal funds to start a business requires discipline as you judiciously raise capital. Since money is limited, compared to what an investor could have pumped in, you are forced to spend on your business’ most important needs. Self-funding your business also removes the headache associated with writing proposals to ‘woo’ investors.
In spite of these many advantages, there are some disadvantages to solely depending on your personal savings to fund your business.
The first of those disadvantages, is that the growth of your business may be slow, except it is a highly profitable one with generous cash flows.
When a business is solely funded by personal savings, if the business should ever fail, the owner is left with nothing or very little to continue to live on. The business may also fail to attract investors, if the owner has weak financial documentation. Also, the kind of contacts and networks that VCs bring into a business is something self-funded entrepreneurs miss out on.
What Quantity of your Savings Should you Use?
If your intention is to avoid taking a loan or ceding control to an investor or a VC, you may want to ask yourself, “Can I afford to empty all my savings into this business so that it can become as big as I imagine?” Be careful about this. You cannot afford to be without savings, however little, in case of an emergency.
Launching your business with your personal savings is good and shows that you are a self-starter. But, the essence of starting off with your personal savings is not to continue running a self-funded business. Instead, focus on executing a well written business plan. Put in place meticulous bookkeeping and clearly spell out your goals so that the business can scale, with eventual third party funding.
The little resources you started off with from your savings will greatly multiply and investors will naturally chase after you.
If you are a start-up entrepreneur and you wish to start a savings plan to channel to your business, check out Investment One’s Abacus Fund here: http://www.investment-one.comfunds-management/mutual-funds/abacus-money-market-fund/