Bootstrapping Basics: How to Self-Fund Your Startup

Bootstrapping Basics: How to Self-Fund Your Startup

Whether your business is still an idea or it’s in the early stages of growth, money is probably on your mind. Starting and running a business requires capital, but before you start looking for an investment deal or a bank loan, carefully consider whether you can bootstrap your business.

Some entrepreneurs choose to bootstrap, which means to build a business using only personal finances and company revenues. Self-funding a startup requires determination and hard work, but has several advantages, including keeping the equity in your company, avoiding interest payments on a loan, and maintaining creative control.

In this post, you’ll learn how to make bootstrapping work for your business from the get-go.

Start With Some Working Capital

Because you’re not turning to outside funding, it’s important to plan early. Before going into business, it’s recommended that you save enough money to cover your expenses for one year. Start saving as soon as possible, either by setting aside a portion of your salary or earnings from a second job.

Having enough personal savings to cover your costs is ideal, but there are solutions if that’s not possible. For example, instead of going all in right away, consider keeping your day job until your business becomes profitable. You can also make some money by working a part-time job, running a small side business, or freelancing from home.

If you need to get creative with financing, you can also:

  • Apply for a small business grant (federal grants are competitive, so try searching for local government or private grants)
  • Get crowdfunded through an online campaign
  • Borrow from your retirement savings
  • Apply for a home equity loan if you’re a homeowner
  • Consider new investment styles, such as offering an investor a percentage of your future earnings in exchange for funding

Control Your Budget

As a cash-strapped entrepreneur, you should have a detailed budget in place, so you’re aware of your monthly revenue and expenses.

As your business grows, you may be tempted to invest in inventory, equipment, business premises, and hiring. However, it’s best to remain cautious with your spending until you’re earning a healthy profit.

Your focus should be on balancing your revenues and expenses, because expanding beyond your financial means can get your business into trouble. Avoid expenditures that would be difficult to reverse, such as hiring a full team of seasoned professionals, leasing a large commercial space, or signing purchase orders that you’re unable to fulfill.

Costs are unavoidable, so it’s also a good idea to optimize your expenses by assessing the benefits of each expenditure. Are your PPC advertising campaigns worth the cost? Can you afford to pay the writer you’ve contracted to generate blog content? Which of these expenses has a better return on the cash investment?

Be Thrifty

In addition to optimizing your expenses, you can keep your budget in check by cutting corners where you can.

Here are some ways for you to save:

  • Don’t pay yourself a salary (yet)
  • Go paperless to save on office supplies
  • Use free or low-cost versions of business software and apps
  • Design your own business cards
  • Buy pre-owned equipment or borrow what you need, rather than buying new
  • Share equipment, software, and user accounts with other startups
  • Make use of your talents by exchanging services (for example, a friend designs your logo, and you help create a marketing strategy for his business)
  • Barter unsold product or supplies for the items you need
  • Work out of your home office or share business premises with other startups
  • Obtain trade credit so that you can pay for the delivered goods at a later date (usually 30, 60, or 90 days)
  • Negotiate consignment deals with your supplier to avoid paying for inventory upfront

Think Before Hiring

Staffing is a big business expense, so one way for startups to cut costs is to limit your hiring. Initially, you won’t be able to afford to hire a team of experienced professionals, so you could find yourself running all aspects of your business.

However, if you can no longer do it all yourself, consider outsourcing to freelancers or independent contractors to avoid the expense of hiring a regular employee. Nowadays, it’s easy to find raw talent at a low cost, as well as experienced industry professionals, to help with tasks such as administrative work, web development, and advertising.

If you’re hiring regular employees, you can still save money in a few ways, including:

  • Growing your team slowly, and keeping employees part time for as long as possible
  • Hiring for potential over experience (recent graduates can be a good choice) to save on salaries
  • Hiring friends or family at below-market salaries
  • Paying employees with company shares to save on cash expenditures

Do Your Own Marketing

A lot of startups don’t have the time or money to invest in marketing, but you can still learn what you need to know and save the cost of hiring someone.

Here are some ways you can manage your own marketing:

  • Do your own market It’s important to differentiate yourself from your competitors, so you should be aware of everything from their prices to their social media audience. You can also learn more about your customers by using free tools like Google Analytics.
  • Do your own public relations. Doing your own PR is actually advantageous, because the media gets to hear the founder’s personal story. Try connecting with smaller media outlets first, such as local radio stations and newspapers, and blogs whose audience might find your company interesting.
  • Use social media. The vast majority of small businesses are now using social media to connect with customers, market their product or service, network with influencers, and learn from their peers and industry experts. A great way to grow your customer base and spread the word is through promotions, such as online contests, and discounts.
  • Use email marketing. There are many reasons to run an email campaign, including finding prospective clients or customers, upselling a purchase, or sending a newsletter. Emails are effective because they build trust and loyalty with customers, in addition to boosting sales.
  • Create local buzz. This doesn’t need to be expensive. Some ideas include painting your company logo on your car, having a booth at industry events and local markets, running a publicity stunt, and hosting an event for the movers and shakers in your community.

Focus on Relationships

Investing in the loyalty of your early customers can grow your startup through word of mouth and help build a strong foundation for your business.

Nowadays, relationships are mainly built through emails and on social media platforms. You can put a human face on your business by telling your company’s story, profiling your team, featuring other small businesses, acknowledging company milestones, and recognizing holidays. Start a real conversation by urging customers to share their stories, encouraging commentary on your blog, and requesting opinions and advice for your business.

You can also benefit from free advertising by asking customers to publish their testimonials on Yelp and other popular review sites. Remember that negative reviews are an opportunity to improve.

If someone has a poor experience, you have a crucial chance to turn their experience around and earn a glowing customer service review. Let’s say a customer’s package is delivered to their doorstep, then stolen before they get home from work. Your business is not at fault, but the customer will definitely be grateful if you replace the item at no charge.

The Bootstrapping Advantage

Until your business starts generating a profit, you need a way to pay the bills and stay afloat. In order to avoid loans and equity deals, self-funding your growth is the way to go. Bootstrapping requires discipline, perseverance, and business savvy, but if you’re successful, the experience will make you a better business operator.

Do you know how to bootstrap your business?

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Jessica Kalmar

Marketing Writer at LawDepot
Jessica is a reader, writer, and outdoors enthusiast.
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