Bootstrapping by definition means spending less than the average business, but there are a few important principles that are often missed by business owners. If you want to achieve success without outside help, then it pays to be smart about the financial moves you make with your startup. Here you will learn exactly what you need to be doing in order to make your bootstrapped business a success.
Starting a business without any outside money can be a daunting task, but it is quite achievable if you know what you’re doing. The first thing the bootstrap business owner needs to understand is that some things will need to be sacrificed for the time being. It is important to decide on priorities before you begin spending.
Planning is important in any endeavor, but when it comes to planning a business, extra care must be taken. A large number of businesses fail early on and many of these die from lack of planning. It’s not enough just to look at the startup phase; you need to look beyond and have a plan in place for the next 1, 3, and 5 years to ensure survival. Keep in mind that many businesses don’t turn much of a profit for at least 6-12 months, so plan accordingly for this.
Once you have started to earn a profit, thanks to careful planning in the beginning, you will need to put that money back into your business. That can mean some lean times, so ensure that you set enough aside to survive for the first year or you will end up using your profits to live, rather than build your business.
Write a Business Plan
A business plan is invaluable in any startup, and as a bootstrapping startup, yours requires careful budgeting. You need to know exactly where every penny is going, so a detailed business plan is necessary. This will help you decide which areas you can cut back in, as well. A business plan should include:
- An executive summary
- Market research and analysis
- A marketing plan
- Company description/mission statement
- Details of the service or products to be offered
- Operational information, such as location, equipment and employees
- Financial information, including cash flow forecasts
- Business goals and objectives, including estimated completion dates
Keep in mind that a brief outline of ideas is not sufficient when you are starting out with very little capital. Your plan needs to be detailed, with expenses carefully researched and written out. Only then will you be able to accurately budget for the most necessary areas.
This also means you will need to do some in depth research, particularly in the area of your target market. Make sure you know exactly who your target market is and why they need your product or service. This will make or break your business as you cannot be successful unless you have paying clients.
Setting financial business goals will also help you evaluate the business along the way. It’s customary to set goals for 6 months, 1 year and 5 years in the future, but you can add more milestones if you like. Be realistic or you will face even more difficulties.
Cut Unnecessary Expenses
Most businesses start out spending more money than they need to. This is due in part to the fact that they are just starting and the truly necessary expenses may not yet be set in stone. Mistakes are made, and these can be costly. Unfortunately, if you are funding your own startup, you often can’t afford to make these mistakes. That’s where the business plan comes in.
Once you have your business plan, go back over it and see what costs can be cut and which expenses are must-haves. A few examples of areas that can be cut include:
- Marketing: although necessary, can be bootstrapped with lower cost methods up front.
- Printing: you probably don’t need a full range of printed materials; stick to the basics, like business cards, until money is coming in.
- Employees: early on, it’s usually more cost effective to hire out to freelancers.
Only you can decide exactly where budget cuts can be made, so take time to analyze your finances. Look at alternatives to the norm, such as hiring freelancers for occasional jobs that you can’t do yourself, rather than bringing on a full time employee with benefits.
Reinvest in Your Business
You won’t be bootstrapping forever. In fact, the very reason you started your business was to earn money, so if you plan everything out and start without debt, you may see a profit sometime within your first year. A common mistake is to use this profit as pay.
Your business cannot grow on its own, so be sure to put part of your earnings back into the business to expand it. This reinvestment should also be included in the business plan, as growth is necessary, particularly in a new business that is just getting off the ground. That being said, you should budget just as carefully as you did in the beginning. Don’t squander the profits on huge marketing campaigns when you’re just starting out. Instead, examine your options and spend the money where it will give you the best return on investment.
In today’s internet savvy world, a few dollars can go a long way. Online marketing is not the only way to go, but it is definitely a good option for the small business starting out without outside financing. Again, the choice is yours. Only you can know what will work best for your business.