Self-funding allows you to keep control of your business and improve your entrepreneurial skills.
7 min read
Opinions expressed by Entrepreneur contributors are their own.
Starting a business is one of the hardest things you’ll ever do. It takes time, energy, and a whole lot of money. More money than you have in your bank account. That means you’ve got to get funded, right?
Tempting as it may be to court investors before opening for business, there are some great reasons to skip funders and do it alone. Here are the top reasons to self-fund your money-making venture and stay debt-free.
Self-funding forces you to develop your core entrepreneurial skills.
There are a lot of skills you need as an entrepreneur. Yes, you should have the skill to hire and fire people, but before that, you’ve got to know your business and your customers inside and out. You’ve got to learn to create a winning offer, sell it and market it.
While you’ll eventually hire sales and marketing teams, you have to be that team for now. If you can’t craft a clear message to sell your business, the best sales and marketing force in the world won’t be able to fill that gap. Slack on your marketing and sales skills, and you and your company are dead in the water.
Marketing and sales aren’t the only skills to master. At first, you’ll also need to be your own accountant. Practice the financial discipline to ensure every dollar you spend has a positive ROI. Study and master the principles of direct-response marketing so you can keep every dollar accountable.
None of that happens easily if you’re getting cash from investors — especially since not all investors understand direct response marketing. They may even ask you to do things that are ROI negative, based on their own opinions or bias. And, as crazy as that sounds, you have no power to fight back as long as they control the purse strings.
Having an influx of cash that you don’t personally sweat for makes you soft. You don’t feel the pressure to make every dollar work overtime for you. There’s no need to tweak what you’ve got. You think you’ve got such a lead on the competition, there’s no chance they’ll catch you.
All that thinking is wrong. Dead wrong. But if your money grows on trees you didn’t plant, you can fall for all those self-defeating ideas.
Being self-funded, like being an entrepreneur, isn’t easy. It’s also not a burden. It’s a blessing, your training ground, how you’ll become a tough-as-nails entrepreneur who makes money hand over fist because you have no option, no fallback plan.
Taking out loans or partnering with a “money guy” means giving up control of your business.
Whether you head to the bank or a rich family friend, you give up control as soon as you hold out your hand for money. I know this personally and painfully.
Early on, I thought I needed partners to fund my new business. The first place I turned was a personal training client. He was my mentor, and he owned a successful software company. The money he had at his disposal made it very clear that he knew business.
Unfortunately, he knew it a lot better than I did. As a result, I signed loan agreements on every dollar he loaned me, which forced me to pay back all of his money with 8 percent interest. As if that wasn’t bad enough, I took on another partner. This left me with a 35 percent stake in the business I bled and sweat to create.
I did all the work, but I didn’t control the cash. That meant I didn’t call the shots. That was one of my first big failures in business. Could it have survived without my partners’ money and input? I don’t know. But I do know that it was painful to part with it because I didn’t have the power to keep fighting for it.
The bank isn’t any better. In fact, by the time the bank is through putting you through the wringer, you’ll be dreaming of having your own investor. Remember: the bank takes nothing personal. This sounds nice until you realize the bank has little to gain by giving you that loan and a lot to lose.
Miss a payment or two on that loan, and you’ll experience stress beyond your comprehension. Skip enough payments to have your account turned over to collections, and you’ll never sleep again.
The reality is, whoever controls the cash will always control the business. Retain complete control of your business’s money and you’ll retain complete control of the business.
When it’s time to expand, leverage what you have.
Your business is growing by leaps and bounds. Customers are begging for more. You’re making a lot of cash, you’ve got plenty of extra coming in, but you don’t want to use the company’s excess cash all at once.
So what do you do?
You bet on yourself. You take the leap. You pull that money from your personal bank account and your kids’ college funds and put it into your business.
You don’t do this because you have something to prove to that jerk from high school who said you’ll never amount to anything. You do it because you’re an entrepreneur, and your one goal is to make more money and more impact. I call this going through “phases of broke.” It’s the moment where every entrepreneur has to set aside their personal comfort and ego so they can reach their next level of achievement.
How much return on investment can you expect if your money is sitting in the bank? What if you put it in the stock market or go with some other investment? If things go well, you’ll get a 10 percent return. If they go really well, you’ll get a little more.
What if you could take that same money and make it turn a 300 percent profit — would you do it? That’s big-picture thinking. That’s what a rapidly growing business can do and no “traditional” investment vehicle can.
Fit Body Boot Camp was at a critical point. I knew if I expanded into our current headquarters, the company would take off. After nonstop planning, I knew I had the entrepreneurial skills and plan to grow my money by 300 percent. Even better, I knew my own commitment to personal growth and development, so I could become the CEO ready to helm the version of the franchise I saw in the next five years.
If you’re in a similar position, leveraging your personal bank account could be the game changer your business needs. But before draining your savings, you need some high-performing income earners. Also, you’ve got to know how much cash you have coming in, exactly where it’s coming from, and what it costs in marketing and man power for you to make a dollar.
If the margins aren’t sufficient and you don’t have a gameplan to 10X your growth, keep your nose to the grindstone and stay away from the bank. Too many businesses take out loans on a dream. The brightest business people know that loans don’t make dreams. They kill them.
Once you have a strong business foundation and you can confidently predict the return on investment, consider expanding with your personal assets. That leap of informed faith is what can turn your business into an empire.
Author: Bedros Keuilian