If you're a small business owner who's looking to grow and expand, it can be a challenge to raise the capital you need. If your business is self-financed—meaning you're putting your own money into it—there are some things you should consider before dipping into your savings. Here are seven tips for how to self-finance your business.
Understand your personal financial situation.
If you’re self-financing your business, it’s important to know what your personal finances look like. This will help you determine how much money you can afford to put into the company and whether or not it impacts any other financial obligations.
Plan for a worst-case scenario so that if your business fails or doesn’t make as much money as anticipated, having another source of income will help soften the blow of losing significant amounts of cash.
Build a savings cushion.
A savings cushion is a must. It's important to have enough money in your bank account to cover a few months' worth of expenses so that if an emergency arises, you can pay for it without having to borrow money or sell off assets (which would be even more expensive).
To build up your savings cushion:
Save 10% of every paycheck automatically when you get paid by setting up a direct deposit and automatic transfers into different accounts (e.g., your checking account). If possible, increase this amount over time until it reaches 15%.
Make sure all tax refunds go straight into either building up the emergency fund or paying down high-interest debt like credit card balances or student loans.
Consider all the ways you can bring in money.
You need to look at all the ways you can bring in money. Here are some ideas:
Look at your current income. Are there any opportunities to increase your income? For example, could you work more hours or get a second job?
Look at your future income. Are there any opportunities for promotions or raises that would increase how much money comes into your household each month?
Look at assets and savings accounts that may be able to be liquidated (sold) quickly if necessary. Do you have anything that could be sold off quickly, such as jewellery or electronic equipment, without hurting its value too much? What about things like stocks or bonds--would those be worth cashing out if needed?
Consider working part-time while starting up a business on the side; many successful entrepreneurs did this before taking their businesses full-time once they were established enough financially
Make a plan for how much and when you'll draw down on your personal assets to finance your business.
Make sure that you have a plan for how much and when you'll draw down on your personal assets to finance your business. As an entrepreneur, you're probably aware of the risks involved in starting a company. However, it's important not to underestimate those risks or make decisions based on emotion rather than reason. A well-thought-out business plan will help keep you from making impulsive decisions that could cost you more money later on.
Be careful how you spend your money.
It's important to be careful about how you spend your money. It can be tempting to spend money on things that aren't essential for your business, such as fancy marketing materials or an expensive website.
While huge investments may seem like a good idea at the time, in the long run, such expenses can really hurt your business if you're eating into what little profit you have and aren't able to mitigate risk your business with essential elements (like insurance, automation, and operational support).
One of the best ways to avoid spending money on unnecessary things is to leverage a cash flow management and accounting software like QuickBooks. These tools will help you to input upcoming expenses (as well as planned expenses), so that you see when you may have excess or shortfalls in your business. Timing is everything.
Additionally, it can be best to leverage more economical approaches to achieving your goals until you have the means to splurge. For instance, instead of hiring an expensive designer out of the gate for your logo, try finding logo designers on Fiverr or leverage a template from Canva. You could even tap on your network and offer your expertise in exchange for theirs.
Talk to other entrepreneurs about their personal financing strategies and experiences, including their mistakes and successes.
If you're not sure where to start, there are lots of resources out there for small business owners. You can find them by searching online or asking friends who run their own businesses if they know someone who has been through something similar. Also, connect with local organizations that provide services for small businesses; they may be able to help you find a mentor or even some funding opportunities. Asking questions is an important part of learning from other people's mistakes, so don't ever be afraid to learn!
When it comes to self-financing your business, planning is key. It ensures that you avoid being in situations where you are stressed out financially given you haven't prepared for various worst-case scenarios. We hope these tips are useful to you if are currently in the middle of planning to self-finance your new business!
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