6 Alternative Ways to Fund Your Business Without An Investor
Raising money is often the toughest part of starting a business, and it’s also the most important. The majority of small businesses that fail within the first few months have one simple thing in common — they run out of money.
The software world is famous for high-profile funding rounds and enormous valuations. But the reality is that most small businesses don’t secure equity-based funding, and it doesn’t always make sense to chase down a venture capital investor. Traditional fundraising takes a lot of time — taking away valuable time that you could be spending developing your product and supporting your customers. There’s also the important issue that as you continue fundraising, you’ll own less and less of your company.
Here are a few alternatives for getting your business off the ground without pursuing VC funding.
Don’t quit your day job until you start making money in your startup
Keeping your day job is one of the safest ways to keep up with your rent or mortgage payments while you build out your new business. If you decide to take this route, make sure you fully understand your employee contract — particularly any guidelines regarding a non-compete clause or after-hours work.
Financially, this is one of the least risky options to fund your business, but the long days can take their toll on you and it can be emotionally tiring to feel pulled in so many different directions. If you’re truly passionate and excited about your business idea, it’s a lot easier to dedicate one or two weeknights and a weekend day to the startup.
Bootstrap and keep your costs low
No matter how big your bank account may be, it’s Business Management 101 to make sure your expenses are realistic for your budget. Don’t listen to all the “go big or go home” or “spend money to make money” speeches: you need to do whatever you can to keep your overhead costs as low as possible at the beginning.
Work out of your home, or co-locate with another company or business incubator. Delay any capital purchases that aren’t absolute necessities, and think about leasing when possible. Hire interns from local schools (don’t forget that an intern doesn’t equal free labor; you’ll need to invest some time to help them grow their skills and experience). And always negotiate your fees and terms with any vendors.
Reinvest any profits back into the business
If your business is profitable, you can reinvest any profits back into your business and feed your growth through your cash flow. As you continue to grow, you can reinvest into additional people, equipment, marketing, etc. The downside is that relying on your company’s revenue means you can only grow as fast as your sales.
Get a private loan
One of the advantages about bootstrapping is that once you reach a certain level of revenue and cash flow, it’s much easier to find a bank or other institutional lender that’s willing to lend to you. Banks aren’t known for taking risks with their funds, so your business will need a solid credit history and revenue to qualify. You may have the greatest chance of being approved if you approach a local bank or somewhere you already have a banking relationship.
Reach out to family and friends
For many, tapping into a friends and family round can be a logical starting point for their fundraising. You most likely won’t have to spend a month putting together a 100-page business plan to convince your mom that your brilliant idea deserves some backing. However, mixing money and relationships is full of pitfalls. You may find yourself getting lots of unwanted advice and having family get-togethers that start to feel more like awkward investor meetings.
If you do end up borrowing money from family or friends, make sure that you’re completely transparent about the associated risk and the expected roles and involvement for any investors. Most importantly, never take money that your friend or family member can’t afford to lose.
Crowdfund
Crowdfunding is not right for every business idea and maybe you’ll just end up raising a couple of thousand dollars from your friends and friends of friends, but sites like Kickstarter or Indiegogo can be a compelling option to explore.
In addition to the obvious benefit of getting you some much-needed capital, crowdfunding can help a budding company in other ways too: it forces you to start building your brand and engaging from the start. You’ll grow a customer base, get more exposure, and get real-world validation about your idea.
The bottom line is money is important to every business, but you don’t necessarily need a multi-million dollar seed or Series A round in order to launch.
Source: mashable.com
