You want to start your 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 and leave your current job. There however is one logistical hurdle stopping you: You don’t have too much money to start off with.
This seems like a major problem, but a lack of personal capital shouldn’t stop you from pursuing your dreams. In fact,most businesses are built without too much backing in the bank. The biggest tech companies like Google and Apple and product companies like Nike or KFC have been built on grit, determination, vision and limited personal funds
Why a business needs money?
Why does a startup really need capital? There’s no uniform “startup” investment requirement for building a business, so different businesses will have different needs. It is hence 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? Are you a tech or service company without physical products?
- Equipment. Do you need specialized hardware or software?
- Office space. This is a huge expense, and you can’t neglect things like Internet, utilities costs, housekeeping services and so on. While this expenses can be kept at a minimum for technology companies (see Amazon’s first office), other product oriented businesses would have to account for the same.
- Operating expenses.What sort of operating expenses would you have to run the business? Don’t forget to include Marketing which is a major component for many new and old businesses.
- Legal fees. Are you consulting a lawyer throughout your business-development process?
- Employees, freelancers and contractors. If you can’t do it alone, you’ll need people on your payroll.
- Startup costs. Company incorporation fees and other related expenses
Generally, you have two main paths of starting a business with less money: lowering your costs or increasing your available capital from external sources. You have three options here:
1. Reduce your requirements
Your first option is to adapt your business model to demand fewer needs from the above list. For example, if you were planning on opening a consultancy, you could reduce your “employee” expenses by being the sole employee at the start.Don’t need to entertain clients often?, work out of your home. 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. Licensing and legal fees will set you back even if you cut back on everything else. A lot of small businesses can start as a sole proprietorship concern and then register at a later date. Do remember however that this method would leave you personally liable for any legal issues and is not recommended for any medium to high risk businesses.
Your second option involves working your way up to your ideal business. Looking at starting a shoe company? How about taking the dealership of a shoe company and build your supply chain? Don’t think that would work? Ask Phil knight,co founder of Nike. Instead of going straight into full-fledged business mode, you’ll start with just the basics to build competency in certain crucial aspects of the business. This will help you get your feet wet while reducing the risk you run when you encounter problems. This hedging would be the best time you can spend getting the nuances of your business sorted. In service businesses, you can reduce your scope to help focus and control your costs. You might launch a blog and one niche service, instead of a full fledged website. This will help you generate initial revenue which is the biggest validation to your effort (even if that only affords you a breakfast and your morning coffee). 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).
Another important thing you can do is leverage the wide array of services online to get tasks done. Most online companies have free plans for limited usage and you can leverage the same in your initial days to get your business going. A simple google search should show you a wide range of services you can use for tasks ranging from logo design, accounting, payment processing, graphic design, copywriting and so on.
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.
3. External funding
Your third option is all about getting funding from outside sources. I have covered most of the sources in my article on starting a company which you can see here, but know there are many many potential ways to raise capital, even if you don’t have much yourself. There are a lot of people/ companies out there who are looking for good business opportunities to invest in. 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. Many of today’s billionaires from Warren Buffet to Mark Zuckerberg have used method
- Angel investors. Angel investors are wealthy individuals who back business ideas early. They typically invest in exchange for partial ownership of the company
- Venture capitalists. Venture capitalists are like angel investors, but are typically partnerships or organizations and tend to scout businesses that are already in existence. You can look for this option once you have some sales under your belt
- Crowdfunding. It’s popular for a reason: with a good idea and enough work, you can attract funding for anything.Some options on this front include Kickstarter or Indigogo
- Government grants and loans. There are lot of government schemes and policies that can help you get loads to help your business get started. Some of them offer loans for specific sections of the society (like women entrepreneurs) or type of businesses (eg: high employment sectors).You can research your local government schemes to get a better idea on this.
- Accelerators/ Incubators. A lot of renowned accelerators and incubators exist that help businesses get off the ground. The help with companies with refining their business model and also provide initial support for infrastructure, services and utilities. Some of these also directly fund start ups. Some examples include Y combinator and 500 startups
- 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. Remember it is better to have a 30% share of a 100 million dollar pie than a 100% share of a 1 million dollar pie.