10 Rules for Starting a Business on a Shoestring Budget

February 8, 2013 | By | Reply More

10 rules for starting a business on a shoestring budget

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!

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 fledgling 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.

shoestring budget

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 fledgling 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, 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.

Recommended Books on Starting a Business on a Shoestring Budget:


Steve Ma. Reyna writes for PowerHomeBiz.com. He is also in-charge of advertising for PowerHomeBiz.com

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Category: Startup Basics

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