What is Bootstrapping?
Simply put, it is creating a business without securing outside funding. The bootstrapped business is funded either from personal savings or other means of securing funding without having to go to external sources.
According to the US Chamber of Commerce, 78% of all small businesses in the US are bootstrapped.
Bootstrapping a business successfully allows the owner to retain 100% of the business and the owner answers to no one. There is also no loan to repay. On the negative side, it means taking all of the risk of starting a new business.
In our case, we started back in 1995, bootstrapping a business called Nova Music Productions Inc., while working full time as an employee at another business. We went from serving local musicians to now serving Fortune 500 companies with unique branding and marketing solutions.
How To Finance a New Business
When an entrepreneur is a full-time employee, it is imperative to save up until there is enough money to launch. Launching too soon can cause the new business to fail because there isn’t enough funding to see it through at least the first six months of business.
The launch can happen slowly, during off hours, allowing the entrepreneur’s full-time salary to further fund the new business. This is key because having funds come in while launching the business can allow for more money to fund the growing new business.
Quitting The Full Time Job
Between the entrepreneur’s own funds and the funds raised through family, it is possible to quit a full-time job to concentrate on building the business so that it would be self-sustaining. Again though, it’s important to not move too quickly. The proper way to finance a new business is taking it in stages. Hastily quitting a full-time job without prospects is dangerous. Everything should be taken step-by-step.
Do the proper research to make sure that there is a market for the service or product. Research vendors to learn who to work with for the manufacturing portion of the business. Building business relationships is key.
Bartering with businesses, offering services in exchange for their service is a great way to build. In this way, it’s possible to create a network of businesses where each business can barter with each other, and help each other grow.
To properly finance a new business, it is also important to limit expenses, delivering products to clients personally if local, rather than using delivery companies. Better yet, finding a fulfillment company that can drop ship directly to clients is preferable. If clients are local and you are initially starting the company out of home, have products shipped there and ask clients to pick up.
Ask for 75% upfront from clients so that there is enough funds to order and pay for the products, ensuring that at least 25% is profit. This limits what has to be paid to vendors to fulfill the jobs to clients.
Renting Office Space
Next, rent office space from either a former employer or rent a space by the hour, so that there is a professional place to meet with clients on an hourly basis. This is invaluable because it is possible to present a professional appearance and not have to pay monthly or yearly rent which saves a lot of money.
Using guerrilla marketing techniques to save money it is also important. For instance, doing a lot of networking and meeting people can go a long way to building a business.
Asking for referrals to others can further build clientele, rather than having to pay for advertising. Offer commissions to people for referrals in return for doing the same for them so that two parties can help each other. These types of creative ideas keep overhead low, so that it’s possible to be able to make a profit in a company’s first year of business.
For the next step, you can rely on existing customers to increase their average order value over time and bring in new clients with higher budgets as the company develops a reputation for delivering high quality work.
As the company grows, the company’s reputation will also grow to where the company will be referred to more and more high-end clients to where the bulk of the work is now geared towards higher end clients.
The Bottom Line
To recap the concept of how to finance a new business without outside funding, bootstrapping a business successfully can be done in stages. After all, what is bootstrapping of any use if it is not successful? If moving too quickly, it’s possible to go out of business quickly, so it is important to build slowly and make sure there is enough funding to carry through the first six months of business. Following these tips, a successful business can be launched with minimal self funding.