Source: Entrepreneur, 3/21/16
You’re excited to start a business. Maybe you have an idea, or you’re just fascinated with the idea of launching and growing your own enterprise. You’re willing to take some risks, like leaving your current job or going without personal revenue for a while. But there’s one logistical hurdle stopping you: You don’t have much money.
On the surface, this seems like a major problem, but a lack of personal capital shouldn’t stop you from pursuing your dreams. In fact, it’s entirely possible to start and grow a business with almost no personal financial investment whatsoever — if you know what you’re doing.
Why a business needs money
First, let’s take a look at why a business needs money in the first place. There’s no uniform “startup” fee for building a business, so different businesses will have different needs. It’s important to first estimate how much you need before you start finding alternative methods to fund your company.
Consider the following uses:
- Licenses and permits. Depending on your region, you may need special paperwork and registry to operate.
- Supplies. Are you buying raw materials? Do you need computers and/or other devices?
- Equipment. Do you need specialized machinery or software?
- Office space. This is a huge expense, and you can’t neglect things like Internet and utilities costs.
- Associations, subscriptions, memberships. What publications and affiliations will you subsribe to every month?
- Operating expenses. Dig into the nooks and crannies here, and don’t forget about marketing.
- Legal fees. Are you consulting a lawyer throughout your business-development process?
- Employees and contractors. If you can’t do it alone, you’ll need people on your payroll.
With that said, you have two main paths of starting a business with less money: lowering your costs or increasing your available capital from outside sources. You have three options here:
Option one: Reduce your needs
Your first option is to change your business model to demand fewer needs as listed above. For example, if you were planning on starting a company of personal trainers, you could reduce your “employee” expenses by being the sole employee at the start. Unless you need office space, you can work from home. You can even do your homework to find cheaper sources of supplies, or cut out entire product lines that are too expensive to produce at the outset.
There are a few expenses that you won’t be able to avoid, however. Licensing and legal fees will set you back even if you cut back on everything else. According to the SBA, many microbusinesses get started on less than $3,000, and home-based franchises can be started for as little as $1,000.
Option two: Bootstrap
Your second option invokes the idea of a “warmup” period for your business. Instead of going straight into full-fledged business mode, you’ll start with just the basics. You might launch a blog and one niche service, reducing your scope, your audience and your profit, in order to get a head-start. If you can start as a self-employed individual, you’ll avoid some of the biggest initial costs (and enjoy a simpler tax situation, too).
Once you start realizing some revenue, you can invest in yourself, and build the business you imagined piece by piece, rather than all at once.
Option three: Outsource
Your third option is all about getting funding from outside sources. I’ve covered the world of startup funding in a number of different pieces, so I won’t get into much detail, but know there are dozens of potential ways to raise capital — even if you don’t have much yourself. Here are just a few potential sources for you:
- Friends and family. Don’t rule out the possibility of getting help from friends and family, even if you have to piece the capital together from multiple sources.
- Angel investors. Angel investors are wealthy individuals who back business ideas early in their generation. They typically invest in exchange for partial ownership of the company, which is a sacrifice worth considering.
- Venture capitalists. Venture capitalists are like angel investors, but are typically partnerships or organizations and tend to scout businesses that are already in existence.
- Crowdfunding. It’s popular for a reason: with a good idea and enough work, you can attract funding for anything.
- Government grants and loans. The Small Business Administration (and a number of state and local government agencies) exist solely to help small businesses grow. Many offerloans and grants to help you get started.
- Bank loans. You can always open a line of credit with the bank if your credit is in good standing.
With one or more of these three options, you should be able to reduce your personal financial investment to almost nothing. You may have to make some other sacrifices, such as starting small, accommodating partners or taking on debt, but if you believe in your business idea, none of these losses should stand in your way. Capital is a major hurdle to overcome, but make no mistake — it can be overcome.