When you start a business, it’s inevitable that you’ll need funding: funding for equipment, inventory, payroll, and oh yea, you might want to pay yourself as well! While you’ve got many options to consider for how you’ll get that funding, bootstrapping is one that might move to the top of your list.
What It Is
Bootstrapping simply refers to funding your startup on your own. The saying “pull yourself up by your own bootstraps” means to help yourself without assistance from anyone else. The same applies to your startup. By not relying on a bank loan or investors to fund your company, you are essentially pulling your business up by its own bootstraps.
Why to Consider It
When you take out a small business loan, you owe monthly payments, and are beholden to that loan until it is paid off. If you bring on investors to enhance your finances, you give up a piece of equity in your company in exchange. Often, they’ll want to give input on how you run your business. If you pay for business expenses with credit cards or a second mortgage, you’re also financially responsible for that debt.
With bootstrapping, you owe nobody anything. That’s how my husband Phil and I started CorpNet: with $100 and no business loan or investors. It was important to us to keep costs low so that we could reach profitability sooner. Heck, we didn’t even rent office space until we were making $100,000 in monthly sales.
Bootstrapping helps you make money faster. With minimal expenses and no debt, the revenue you start bringing in when you first start a business will quickly multiply.
How to Do It Right
While bootstrapping can lead to profitability sooner, it may take longer to launch your startup. If you don’t have coffers piled high with money, you may need to spend several months — or even years — setting aside money for your business while you continue to work for a salary. Don’t rush; you want to have plenty of money for your startup’s launch. The last thing you want is to launch too soon and then run out of money before you’ve even taken off.
Keep expenses low until you are profitable. That means you might have to put off hiring staff and do more yourself until you can afford to hire help. You’ll have to wait on buying that foosball table for your office too, if you’re serious about growing your business rapidly.
Paying attention to your money is essential when the funding is coming from your own pocket. That means paying attention to what kind of clients you’re attracting and how much people are spending on products or services. It means being discerning about where you spend your money, too.
The Best Business Structure for Bootstrapping
Unlike when you seek funding and investors require you to be a corporation before they’ll even consider funding you, there’s no specific business structure you need to bootstrap your startup. Still, it’s a good idea to consider registering a company as an LLC or corporation, to protect your personal assets.
If you want to launch your startup with zero debt, then consider bootstrapping. It’s well worth taking your time and saving up enough money to start your business to not have to worry about a monthly loan payment or about getting investors their equity back.
Looking for information on how to register a business? CorpNet can help with your business name, business structure, and business filings.