Capital Structuring for Small Businesses (Part 3 of 3)

Finance Option #3 Bootstrap Financing.

I saved this one for last since the other two forms of financing are pretty common and, for most of us, the only option for getting a business off the ground. So what is bootstrapping? The term bootstrapping comes from "pulling yourself up by your bootstraps." Notwithstanding the awkward posture required for this action, this form is not quite as prevalent in the small business world after the first several accounting periods. I will say, it is possible, and if you feel convicted to have a debt-free business, then I say, go for it! Just think, no monthly payments on debt, no investors to worry about keeping happy, the only bills you pay are the ones you have to or the lights will go off. It's a pretty great feeling I'm sure. I'm still in the early stages of my business, and so far we're cash only, no debt. I'm keeping my options open, but not owing anyone anything on the business is awesome.

That being said, you generally need some pretty deep pockets unless you don't have personal debt, a family to support, and have pretty low living expenses. I've heard is said in several places, "Live like a student for the first X number of years of your business." Ironically, the length of student-living varies with the kind of business you have. What I mean by “live like a student” is that you live on just what you absolutely need, and plow every spare dollar back into the business. For some, it could be one year of rice and beans, for others, it could be longer. If I had a crystal ball that told me how long it would be until your business was self-supporting, I wouldn't be blogging or bookkeeping, I would have a roadshow that gives business predictions at a million bucks a head.

In the end, is it a risk to start your own business? Yes, but the real risk could be not starting.