Does starting a business with a small amount of money sound too good to be
true? No! There are many home based entrepreneurs who have successfully started
their own businesses with little money. We’ve interviewed
entrepreneurs who bootstrapped their businesses for as low as $500, yet they
are now raking in money from their businesses. The lesson? Do things right!
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Of course, the ideal scenario is to start a business with enough money to enable you to
move more aggressively and expand your business faster. But even if you do
not have money, that should not prevent you from starting your own business.
If you have great idea and a viable business plan, you can use Other People’s
Money (OPM) to start your business. Or if you do not have access to OPM, you
better learn how to tighten your belt and bootstrap your fledging business.
Remember, while you may not be spending money, you still have to pay with
something your time and energy.
Below are 10 rules that you need to follow to successfully launch a
business with very little cash:
1. Think twice before
borrowing. It would be ideal if you will not have
to borrow money to start your business. After all, you want your own
business to give you an additional source of income, if not the main
paycheck. You do not need another bill to pay.
But sometimes, you really have to borrow money to keep going. A major
reason why many small businesses fail is inadequate capital. If you really
have to, you must be
prepared to take on the right kind of debt. Not all debt is bad debt. You have to
ensure that
before taking on a debt, you must see a way to pay it back through your
business.
As much as you want to be optimistic about your venture, there is always
the possibility that your business can fail. Instead of
fattening up your bank account, you could end up selling your house, your car and
withdrawing your children’s college tuition just to pay off the debts. Be
a smart risk taker.
2. Be lean and mean. If you have limited capital, set aside any thoughts
of a fancy store or great office. Start home-based and explore the
advantages of working at home. Or
if you must be “out there” selling your products, rent a small section
at a flea market or fair. You may consider renting at the mall only when you see
money coming in.
In terms of legal structure, you can save tons of money by starting as a
proprietorship. A Corporation is expensive to set-up, requires vast amounts
of record-keeping, and will tax you twice as an individual working for
the business and as a corporation.
Plus, you have to operate as tightly as possible. As a sole business
owner on a budget, you do not have the luxury of wasting supplies, making
unnecessary long-distance calls, and spending office money without a
thought. Now every expense comes from your own pocket.
Spend money only when
you really have to. In fact, you can save tons of money if you select a
business based on equipment that you already own. For example, consider
starting a photography business if you already have your camera and
photography gear. You may want to start a daycare business if you already
have enough space in your house rather than spending money at the start of
the business constructing new rooms in your house. If you must buy
equipment, do so only when you have already landed your first account.
Otherwise, consider renting it for the moment.
3. Choose your business carefully. Your choice of business will spell the
difference between making your business a success on a shoestring budget or
not. Some businesses, such as a file storage facility, require enormous
capitalization. Other businesses, like a wedding coordination business or a
computer consulting business can be started on a thin budget. Choose a business that
can be started even with little capital.
If your dream business requires a significant investment
to start, you may want to downsize your dreams first and start a business
that you could afford to start. It may be a smaller version of your original
vision, or another business interest altogether. This will allow you to acquire the
needed entrepreneurial skills, learn how to start and run a business, and
save enough capital for your dream business. Even if you are not able to
save enough, your track record as a businessperson can make it easier to
borrow loans from banks.
4. Make sure that there is demand for your
business. If you do not have
enough resources, you have little room for trial and error. Your business can only
survive if it generates enough demand to sustain it. Be sure that the
business you are about to start can give the results that you desire.
Otherwise, you may even lose the very few resources that you have.
5. Look Big. Many home business entrepreneurs are faced with the dilemma:
“Should I tell my customers that I work solo from my kitchen"; or “Should
I pretend that I am running a well-oiled machine?”
In most businesses,
your success hinges on how customers perceive your venture. Letting
customers know that you a one-person home business may be the kiss of death
for your fledging enterprise. Customers prefer dealing with a business that
shows professionalism and ability to deliver what it promises qualities
often associated with large businesses.
Looking big does not necessarily mean spending tons of money. You can
start with sharp looking business cards and stationery. If you have a web
site, you can create one that looks just like one of the big boys. Your
phones must be answered professionally as possible, making sure that no dogs
can be heard on the background. Barry Edwards, Louisiana’s Small Business
Entrepreneur of the Year Awardee for 2000, even changed his voice when
answering the phone to pretend that he has an assistant when he was just
working from home.
6. Be creative. You will only survive as a bootstrapper if you are
able to use your wit and creativity to extend the meager resources that you
have. As you start your business, you need to think ways to get things
done, as cheaply and efficiently as possible. The less cash outlay, the better.
After all, splurging on one aspect of your business say, buying a top of
the line laptop computer may leave you with nothing to market your
business.
You need to be creative and resourceful in finding ways of stretching
your thin budget. Need a business card? VistaPrint offers 250 cards for
free. If you need a web site, go to the public library, borrow books on Web
design, and begin learning how to create Web sites.
One reality of having little cash is that you have
little recourse in doing things. You do not have the luxury of a
30-man Web design team, or a battalion of sales people to sell your
products. You have to force yourself to learn new things, and find ways to
bring in the buck. If you want to survive, you need to rise above being a
cash-dependent entrepreneur to a wit-dependent businessperson.
7. Run your business with a passion. Starting a business is hard, doubly
so if you have a limited capital. It is like going to a battle full of heart
but with little ammunition. It doesn’t mean that you can’t win, but you
have to act smartly, maximize your resources, and go after your goal with a
burning passion. If you are passionate in what you do, you tend to work
harder and go that extra mile. After all, you need to put in more time and
effort to compensate for the lack of capital.
In your clothing business, for example, you will have to do the
designing, sewing, finding and selling to buyers, and writing the press
release to market the business. If you lack passion, you will not have the
strength or the patience to do all these, and more. Passion will help you
sustain your enthusiasm and energy to do what is required to get the
business off and running. It is what sets successful bootstrappers apart
from other start-up entrepreneurs.
8. Your customers are your gold mine. You may not have the resources to
aggressively seek out new customers. Nor do you have the deep wallet to
offer grandiose customer loyalty programs. But if you take care of your
customers really, really well, then your customers will take care of you.
Customers go back to businesses that offer them quality and timely service,
help them make informed choices and make their lives easier.
Every business owner knows that the customer is king. If you do not have
the money to easily acquire new business, you will make sure that you always
roll out the red carpet for those that you already have.
9. Think cash! As a bootstrapper, you do not have money. You do not have
the luxury of waiting for 60 or 90 days before you can get paid for services
that have already been rendered or products already provided. You need cash,
and you need it now.
Therefore, you must always make sure that your business generates cash
fairly quickly. Will Davis, in his book “Start Your Own Business for
$1,000 or Less,” advises shoestring entrepreneurs to always select cash
payment opportunities. As Davis says, “Select a business where you get
paid quickly in cash. If your work will take time to complete, get a partial
payment at the start. Often this will be enough to pay for the job’s
expenses.”
One strategy to make sure that you have cash is to avoid or limit
inventory. Inventory means that your cash is held up in your items. Purchase
only what you can sell. Avoid overstocking items particularly slow moving
ones. Unless you can move inventory quickly, do not tie up your money on
excess inventory.
10. Keep the money rolling. As soon as your business starts earning, make
sure that you keep a certain percentage of the profits for the growth of
your business. Avoid using your earnings for your personal use. There are
many shoestring entrepreneurs who go on a personal shopping spree after
receiving their first check, without any regard for the next inventory
requirements, PR and marketing campaigns, or new equipment to purchase.
You may allocate a certain portion of your income as your salary, which
you can then use for whatever purposes. The rest should be placed in your
business account. Your business needs all the resources it can get for it to
reach the next level. If you regularly plow back the money to your business,
you are then in a better position to expand and grow the business.
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