Entrepreneurs have a penchant for self-reliance, which is why many of them try to self-finance their business operations before they launch. You need to be sure that you will have enough funding to cover your launch expenses, and that you’re able to pay yourself back. Once you’ve answered those questions, it’s time to look into self-funding options for your business.
Sources of Funding
Start by making a list of the various methods you can use to create cash flow for your business. The simplest method of doing this involves discipline: just save your money. If you can take a small percentage from your paycheck to put towards the initial investment you need to start a business, you will be well on your way. It may take longer than financing, but that just gives your idea more time to grow. If you’re pressed for time, try refinancing your house. This will slash costs and create income where that did not exist before. You can then take a loan out against the equity on your home, but be wary that banks may not readily loan you money from equity to put back into a risky venture.
Sometimes your employer may offer severance, or some other kind of payout when you leave the company. This is essentially like your employer is buying you out of your own business before you even begin, helping to launch you with a small injection of capital. One of the last sources to tap would be your retirement savings, and your stock portfolio. These investments are long term, so you’re trading those benefits for the upfront benefit of starting your own business. Carefully reexamine your business plan if you intend on going this route, as it is the riskiest to your future.
Advantages
Probably the biggest advantage that a self-funded business has is that it’s entirely owned by you. If you don’t build debt, you’re free to allocate your business resources and revenue towards newer projects. This means that businesses who self finance, and are successful at or after launch, may be able to scale faster than someone who owes a bank. The biggest problem is the risk that you take on, namely that you don’t actually know whether your business will succeed for a fact. In the case of self funding, conduct an audit of yourself and your potential business. Assess the risks and the potential returns, then decide whether the investment is worth it. You should also have a clear date in mind when you can pay yourself back for the money you’re investing.
The lululemon Story
Lululemon is a yoga and clothing company that began in Vancouver. Chip Wilson, the store’s founder, found inspiration after a local yoga class he had taken. What he found was that the majority of people were using cotton clothes, which struck him as odd considering all the sweat build up. He designed a few sets of yoga clothes, asking local instructors to wear the fabrics and give him a review.
Soon he was running night-time yoga out of his studio to help pay for the bills while he geared up to start his own clothing line. Chip Wilson had already helped to launch another brand called “Westbeach,” so he had some know how on how to market and sell clothing. What he did not expect was to create a brand that would help form a community. The grass roots approach to self-funding his business came with a built in customer base. Anyone who visited his studio for yoga, invevitably saw that he also sold yoga clothes.
Using grass roots tactics, smart marketing and community building, Lululemon became an entirely self-funded company.