Many a budding entrepreneur has asked me how to start a business when one doesn’t have any money. People often have more resources than they realize and to run a business requires summoning all the help that an entrepreneur can amass to return a profit effectively. Running a business is an art in resource management. Invoking and utilizing these hitherto unknown resources is referred to as bootstrapping.
In this article, we provide 14 steps you can take to bootstrap your business:
- Start with a simple business idea
Starting a world-class hotel is a great idea, but it is probably not achievable if a budding entrepreneur doesn’t have the cash to kick off such a project. The entrepreneur needs perspective to their aspirations and starts the business with short-term and long-term objectives. So, while a hotel business may be fantastic, the budding entrepreneur should begin by learning the necessary business skills required to run such a business. Learning how to manage a restaurant or food business in isolation could be a start. The restaurant business would teach the budding entrepreneur food preparation skills, manage demand at peak times, manage food and beverage costs, and manage costs. Baby steps are what does it.
- Start a business that has a short cash cycle
A restaurant business requires industrial food production equipment, rented spaces, staff, etc. which could be a stretch for the early entrepreneur. For this reason, the entrepreneur should consider a business with a short cash cycle, thus avoiding tying up resources in underperforming assets. For example, the entrepreneur could start a business by selling hotdogs and burgers from a food truck.
- Conduct thorough market research
Thorough market research will help determine the feasibility of the proposed project. Since the objective is to save on start-up expenses and you probably lack relevant market research skills, consider approaching some colleges or universities to do the market research for you as a school project. SurveyMonkey and Survey hero are examples of free online survey tools. Still, you will need to perform market analysis and design campaigns for which there are several free online templates that you could customize for your needs.
- Avoid going it alone – if you can
A problem shared is a problem halved. Join an established person as a partner if possible to allow you time to grow into the business and reduce on immediately stepped costs.
- Use your savings as start-up capital
To avoid losing control of your business at a vulnerable stage, if you have some cash savings, you should finance the business yourself. Obtaining investors at inception will dilute your ownership, and loans could throttle your business if you don’t make significant profits that translate to cash in the first years of operation. Be mindful, however, not to use all your money on a poorly thought out business since most businesses fold within the first five years.
- Test the waters
A wise man said, ‘‘never test the depth of a river with both your feet’’. Basically – don’t quit your day job! At least not yet. Most businesses do fail, even with a great plan. The timing could be wrong, trends change, etc. Therefore, to avoid disappointment keep your day job and initially work the business as a side hustle until it grows legs.
- Work from home
Successfully bootstrapping your business requires being brutal about managing costs. If you consider starting an architectural firm, for example, consider working from home or if that isn’t a suitable proposition –ask to rent a desk in an established business. Starting up a brand-new office will tie up the cash you need to grow. Consider hiring people on a contractual basis, for example, project-based, to make your costs variable rather than fixed.
- Barter where possible
Most people eat burgers and hotdogs. It is unlikely that your accountant will accept a year’s supply of hotdogs to do your accounting and tax returns, but you could barter hotdogs for some accounting – if you ask nicely. You could trade your overall culinary skills for services that your business needs. For example, suggesting feeding your accountant’s family reunion in exchange for tax returns could be compelling. Get up and sell your proposition to possible suppliers. The worst they could say is ‘no.’
- Establish excellent relationships with your suppliers
Establish great relationships with your suppliers and give them periodic briefs on how your business is doingwithout getting into detail. A mutually beneficial relationship built on trust will enable your suppliers to extend credit to you where the banks will not, and this will undoubtedly be less expensive. Be very careful not to breach your supplier’s trust by paying bill slate or reneging on terms because this could backfire enormously and significantly hurt your business.
- Establish excellent relationships with your customers
Understand what your customers do with what they buy from you. Understand your customers’ business and cash cycles to know when you can successfully expect early payments from them and when they are likely to be constrained. Explain your purchase cycle and pains so that your customers understand when you are most likely to be strapped for cash. By creating strong relationships with your customers, they are likely to be loyal, and your customer retention will improve. Make sure you invoice on time for your goods or services and always collect a deposit that significantly covers your costs. Send out account statements every month on the same date, and encourage your customers to pay invoices on time as per your terms of business.
- Outsource non-strategic business functions
Do not go on a hiring spree and especially avoid hiring family and friends. Figure out what functions are strategic and need to be held close to the chest and perform those yourself if possible. If you do decide to hire, start with a part-time position that could grow to full-time. Hire staff only after they have served a short-term contract, to avoid legal payouts for staff layoffs. Some functions could be outsourced and performed more efficiently and cost-effectively by a third-party. For example, outsource bookkeeping or payroll functions to a more experienced and knowledgeable person rather than exposing yourself to the risk of payroll compliance errors.
- Watch your cash flow every single day
Watch your cash position daily and create a rule of thumb never to spend more than you have in the bank. Be frugal! and distinguish between needs and wants in your life. Simple life changes will see your cash balances grow.
- Prepare accounts – monthly!!!!!!!
Financial discipline from the get-go means you need to know and own your numbers. Do not wait until the end of the year to get your accounts in order. Start preparing accounts and reconciling your bank balances the very first day you start your business. Have short periodic meetings with a friend who understands accounting to critique your performance and teach you how to read financial reports. Avoid abusing your friend’s time and make a personal effort to learn about accounting and tax via online research. Some free online accounting software for small businesses include Wave and GnuCash.
- Plan your business
Prepare a business plan to help map out your entrepreneurial journey. Various online resources can help you layout a business plan, meaning you don’t have to spend any money-drawing a business plan if you can follow a well-laid-out template. If your business is complex and you lack the skills to put together a business plan – ask a friend to help you out. Preparing your business plan will wake the inner entrepreneur and give perspective to your business idea. However, if this is a worthwhile effort, you need to get critical input from friends and family that won’t hold back punches.
Good luck with your entrepreneurial journey!