Bootstrapping Business: How to Start a Business Without Any External Financing?

Source: Pexels

As of February 2022 when I’m writing this, more and more folks are ditching the trad 9-5ers for something much more exciting – Their own business. 

All of that frustration, creative ideas, and yearnings surprised by capitalistic structural lessons we’ve been taught since we were kids are finally coming out.

From the looks of it, every other 25-year-old kiddo with a decent following on social media and a few bucks from online sponsorships is a CEO of some kind. It’s not even a rarity anymore. But when push comes to shove, many of these cocky youngsters fail at making it big due to poor financial planning and budgeting.

But that’s the catch. No matter how modern the times have gotten, one Wallstreet saying has stayed the same – “You have to give some to get some.” An old cliche that never seems to lose its impact,  bootstrapping your business has never been more necessary.

Whether or not we want to admit it, financing and raising capital is one of the most important aspects of starting a successful company. You have to prepare, pre-schedule, and predict every single penny usage, where it’s going, and what it’s for.

To avoid external financing, as well as unnecessary but regular headaches and worries, we’ve created a short business guide for you.

Construct A Doable Business Plan

First things first, market research! Market research is one of the most important aspects of starting a new business because it helps you understand your niche, as well as your average targeted audience member.

Additionally, this will give you a pretty decent picture of your opportunities and limitations, especially within your own market. Your product should be in the centerfold of what your targeted audience wants; the rest is either unnecessary or covered up with cheeky marketing and design.

Speaking of design…

Branding is More Important Than You Think

Tieing your product in a shiny branding bow before exposing it to your core audience is a necessity, without a doubt.

One of the best ways to actually avoid external financing is to market your product adequately to the right pair of eyes. And everything counts, from your business’s name to the logo and website design – the better the visual aspect of your business is, the more serious you’ll appear to your audience, and naturally, the more sales you’ll make.

And lastly, once you figure out your style, color scheme, and logo – make sure to stick that baby to every piece of your business, making sure everybody knows who it’s from, and where they can get more.

Calculate your Finances

Since we’re leaving all the idea brainstorming and creativity to you, let’s get right into the numbers of it all.

Every business idea comes with a price, or a cost if you will. Do you have enough to finance yourself, or do you have to be financed? How do you even get financed as a business?

Before making that executive decision, it’s very important to calculate your startup cost. In all honestly, overestimating the amount of startup capital you require is a great idea because the road to sustainable revenue is very long and bumpy.

The bottom line is this: avoid losing money, quite literally, at all costs.

Here’s the simple formula: Fixed Costs ÷ (Average Price – Variable Costs) = Break-Even Point

Bootstrapping Business
Source: Pexels

Establish Traction by Staying Realistic

One of your main priorities should be determining the profitability of your product.

And no, we’re not talking about your grandma’s proud Facebook post about your new launch. We’re more talking about customer response and revenue as actual and valuable indicators of success.

When you compare the public’s demand and the product you have in your offices, can you see some common ground between the two? Can you estimate any kind of profit from it?

Remember, it’s much easier to “give some” once you know you’ll most likely “get some” in return. And although nothing here is with 100% certainty, some preparation and estimations are always recommended.

 

Calculating the Profit Margin 101

Since the goal is to always earn more than you spend, this simple little metric will help you calculate exactly how your business is doing. To determine the profitability of your products and business, here are the simple maths:

Let’s say your business’s revenue is $100, and the cost of making the product in the first place is $10. Now we know your gross profit is $90; “divide that number by your revenue ($100): $90/$100 = 0.9. To get the final percentage, just multiply that number by 100, which makes the profit margin 90% in this case”.

Whenever you are facing pricing problems or struggles, the profit margin shows off its importance right then and there. It helps you understand where every penny went, and what it took for every dollar earned.

 “Your profit margin reveals the general health of the business,” said one of today’s CEOs, and we couldn’t agree more.

What is Bootstrapping Business Strategy?

In a bootstrapped finance model, the business entrepreneur uses the funds he owns to finance the business. Using only existing resources (translation: no venture capital or major loans), bootstrapped companies build their businesses from scratch. The term “bootstrapping” comes from the iconic expression “to pull oneself up by one’s own bootstraps.” When you choose this type of funding, you’ll be keeping yourself afloat using your personal savings—perhaps with a bit of support from family or friends—and the sales you make once you launch your business.

Despite having full ownership, greater control, and receiving 100% of the profit, there are downsides of this model, such as financial risk, slower growth, and others. Now when you are just starting, bootstrapping and self-financing is the way to go.

The practical do’s and don’t help avoid stupid rookie mistakes that plenty of people have made in the past. Bootstrapping a small business is no joke, and not many folks are fully capable of doing such a thing. Thankfully, these 5 steps and ideas will perhaps give you a little bit more insight into what you are getting your business into. To avoid some unnecessary hardships and nerve-wracking financial blows, take a look at some of the ideas we have here.

1. Less Startup-capital is much better for beginners

Everyone would just LOVE to open a cozy cafe or restaurant in the most prominent or “hipster” part of town, right? Sounds like an indie movie dream come true. But such a business move requires insane amounts of capital injection, making it very hard to actually pull off.

If you are a rookie, or just struggling with cash, choosing a less demanding business type, like food or coffee delivery, would be a great starting point before going hard mode on a bootstrapping business.

2. Give Bartering a Chance;

“In trade, barter is a system of exchange in which participants in a transaction directly exchange goods or services for other goods or services without using a medium of exchange, such as money.”

In other words, you have a chance to exchange the products you require with goods someone else needs. Just a little heads up though, make sure both products have the same value on their heads.

3. Be a Part-Time  bootstrapping startup in the beginning;

Just quitting your job out of the blue and starting your business is a road that most likely leads to disappointment. Start your CEO journey part-time, before deciding it’s the right thing to do permanently.

4. Try cutting down on some of your expenses; 

Not enough cash for office space? Work from home, or makeshift a garage into an office-friendly space if you can. Cook lunch instead of buying it; cut down on everything you possibly can to avoid useless expenses that could have very well been put to your business’s future.

5. Invest in growing your Social Media

If you are a business in 2021, do you even exist if you are not on Instagram? Brands spend thousands, some even millions of dollars to make sure their social media presence is top-notch. From Instagram marketing to organic growth by third-party services, brands are not playing around when it comes to making money online.

Odds are that your average consumer will check you out on Instagram Stores or just click the link in your Bio to get to your website. Social media platforms create A LOT of buzz around your products and brand, so make sure to either pimp yours yourself, or hire a crafty Social Media Manager/Content Creator to do it for you.

The more traffic and overall buzz your pages make, the more revenue will your business gain.

The key takeaways

The social media culture we live in today has made it look so easy to start your own business; probably because of the most famous CEOs of today. Loads of young adults, women, and anyone who has not been in the business-oriented spotlight throughout previous decades.

And despite the massive floods of inspiration we get from these peeps, it still paints a false narrative: it’s very hard to build a business from scratch…but still not impossible.

With the smart business model, a piece of personal savings, and even smarter budgeting, who knows what you could accomplish, you just might be the next serial entrepreneur!

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