Bootstrapping vs. Investor vs. Partner?
By VICKY BROWN
You know, it usually hits me when I’m looking at the projected Cash Flow Forecast – and the numbers aren’t showing nearly enough decimal points for my liking. That’s when, even after over 20 years in business – I hear the voice in my head asking – are you really sure bootstrapping is the way to go?
Listen, starting a new business can be exciting and challenging. And one of the first decisions that you will need to make is how to finance the business. Now, there are really three main options: bootstrapping, investors or a partner. In this episode, we’ll talk about the pros and cons of each option, so you can make an informed decision about the best path for you.
Bootstrapping, also known as self-funding, is the process of using your own personal savings or income to finance your business. That means generally you’ll start out using credit cards, taking out personal loans, or using personal assets as collateral. Then later, as the business gets going, you’ll use the profit from the business, and invest it back in the business. Bootstrapping is a great option for entrepreneurs when you want to keep full control over your business and you have a clear vision for how to grow it.
In fact, that’s one of the main advantages of bootstrapping – it lets you retain full control, without the need to answer to investors. You have the freedom to make decisions that you, personally, believe are best for the business. So go ahead and take on more risk, or pursue new opportunities. These may not sound like great ideas to investors, but if you’re bootstrapping, you won’t have investors to answer to at all.
Another up side to bootstrapping is that it can be a more cost effective option. Since you won’t need to share equity, or pay back loans, you get to keep more of the profits – and that can help you grow the business more quickly.
But there are downsides. In fact, the main downside is that you’ll have limited capital – meaning…less money.
An investor can give the business a big cash infusion – and that can allow you expand ore quickly, hire more staff, invest in new opportunities.
And there’s another up side to having investors. And that’s because investors are usually experienced business people – and if they are willing to invest in your business, that means they believe in your idea and they consider it viable. The can offer invaluable help validating your idea – and they can open their contact list to you.
“… going into partnership is a huge step, and there are a lot of things you should think about before the business marriage.“
That’s a really big one. Having access to people you might not otherwise know or connect with, can be a huge advantage. But remember, if you want to be able to take advantage of all this – you have to consider who your prospective investor is, what is their experience, who do they know, are they willing to help – and most importantly, can they guide and coach without trying to take things over?
You’ll probably have to share decision-making power and you may even have to compromise on your vision for the business in order to satisfy your investors.
And then, there is, of course, the documentation and metrics requirements. After all, investors want to see their investment grow – so they’ll want to keep tabs on how the company is doing. That means regular financial reports and updates, metrics and key performance indicator reporting, how are you doing against the agreed targets.
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The other option is to get a business partner, someone who can help you on the financial side, and the workload side. Now a partner is great – because you aren’t alone, there is someone right there to help you carry the load. And if you get someone who is experienced, you can even get some of the same advantages of having a seasoned investor.
But going into partnership is a huge step, and there are a lot of things you should think about before the business marriage. We’ll do a deep dive in next week’s episode, so be sure to check it out.
All three options (bootstrapping, getting an investor or taking on a partner) – well they all have advantages and disadvantages. But the most important thing to think about as you weigh the options is what will work best for your business and your personality. Listen, if you absolutely hate people telling you what to do – then I’m thinking bootstrapping might be the thing for you.
But if you want to go fast, you’ll need cash, so an investor or partnership might be the way to go.