Starting and growing a business on a shoestring budget may not be the optimal choice, but if you are an entrepreneur at heart, it will put you in good company. Remember, most start-ups began without as much money as the owners would like, but they get off the ground anyway.
But understand this, too: although starting and growing a business on a tight budget is possible, it is not easy. Doing it successfully requires several things: the right attitude, OPM (other people’s money), and frugality.
The rightattitude
To do it right, you need to begin your bootstrap entrepreneurial journey with a grounded understanding of what it will take. There are five rules of the road to follow:
1. Have confidence in yourself. that fortunes can made on minuscule beginnings. Maybe, it is amazing. There are ways to do it. If others have done it, you can, too.
2. Understand the difference between good debt and bad debt. When you do not have enough money, you usually have to go into debt to start or grow a business. But it is important to understand that not all debt is bad debt. Bad debt is unmanageable. Credit card bills that you cannot pay are bad debt. But debt that helps you get ahead in life - start a business, buy a home, or finance a college education - is good debt. Most millionaires start out in debt. It may not be ideal, but if you have a plan to pay it back, start-up debt can be good debt for you, too.
3. Serve the market. Every successful business must serve a market need. Whatever your shoestring idea is, it had better be a darn good one. Shoestring entrepreneurs rarely get second chances. Tappingfriends and family to help finance your dream can happen only once. Invest in only your best, most commercial idea.
4. Shoestring businesses require creativity. Improvising, making do, juggling, and borrowing from Peter to pay Paul will be necessary if you have to start or want to grow a business on a limited budget. Hire part-time students. Buy some software and learn how to design your own website. Ask for free help. You will have to be highly energetic and very creative if you are going to succeed in this sort of endeavour.
5. Mix with workforce.To be successful, you will need to be out there raising money, selling, projecting a confident image. If you are afraid or unsure, stop right there and make a U-turn. Shoestring entrepreneurship is for the strong hearts.
Outside people’s money
There are two types of shoestring operations. The first is started on a shoestring without borrowing any money at all. Maybe you have Rs. 500,000 or Rs. 1.0 million or Rs. 2.5 and want to start a business on your own but do notwant to take on any debt.
Usually, such ventures begin as part-time home-based businesses that grow incrementally. It is possible to make a go of it, but the margin for error is so slim that it makes the possibility of succeeding very small.
The second type of shoestring entrepreneur is one who wants to start a business without much of his own money or who wants to grow his existing business but lacks the funds to do so. These entrepreneurs will have to get some funding somewhere. They will have to use outside people’s money. The challenge is finding that outside person with the money.
Finding money
Finding that money is a two-step process. No investor will put money into your idea based on the idea alone. You will need facts and figures to back up rosy rhetoric. You need abusiness plan. Then you must go out and start knocking on doors. Funding a start-up without your own money is a numbers game. You will likely need to talk to a lot of people before getting the money you need.
Begin with friends, family, business associates, and professional colleagues. Most of these people will want to see that you are investing in the business, too, figuring that if you are unwilling to take a financial risk, why should they? If you have no money to put into the business, you have to be up front about that.
Explain that your time, effort, and expertise will be your investment, and that is worth a lot. If you have some money to invest, do so. Even a little bit can impress. Try not to get discouraged. Remember, it is a numbers game.
Understand that, armed with a business plan, a good idea, a winning smile, and little else, you represent both peril and promise for would-be investors. The peril is that you could take their money and lose it on some untried scam. The promise is that you could take their money and make them wealthy with your great idea. Your challenge is to prove that the latter is far more likely to occur than the former.
The friends and family plan may work sometimes, and sometimes it does not. If it does not work for you, here are a few other viable shoestring funding sources.
Locate a partner
Many partnerships begin because one person has the idea, skills, experience, or opportunity and the other has the money. If you have the desire and passion to start a business or need to grow your present business but lack the funding to do so, then teaming up with the right partner - one who has money - is a very real way to fund the plan.
Of course, you will have to give up half your equity, but that is a small price to pay to live your dream. The question you probably have is, where can I find that magic partner? There are several sources: You start by networking. Speak with your lawyer, accountant, and other business associates. Talk to friends, family, colleagues, and people where you worship. Get the word out. Networking works.
You should also speak with suppliers and distributors, as they may know people in the field who are looking for an opportunity. Consider speaking with people in your line of work who have retired. They may want to get back in the saddle or become a passive investor or partner.
Conduct a Google search. Put the word out via LinkedIn, Twitter and other social media. Put an ad in the paper under the section “capital needed.” Scour the “capital available” section as well.
When speaking with potential partners, you will get the money you want only if the partner gets what he or she wants. It may be that the partner wants a say in day-to-day operations. It may be that he or she just wants a monthly cut of the profits. Here, then, is another winning concept from the desk of the successful small business person: ask investors what they want and give it to them.
Your partner might want to be a 50–50 partner, or a “silent” partner who merely wants to invest in return for a share of the company. You will get what you want if your partner gets what he or she wants.
Supplier and Distributor Financing Distributors and suppliers want your business, and they know that by offering you some financial assistance, they may be able to turn you into a long-term repeat customer. Your job, then, is to show them that if they lend you some money to get started, they will get your continued business. This happens more often than you might think.
Suppliers and distributors will want to learn about you, visit your business (if you have one), and check your references. Like any lender or investor, they need to be convinced that you will be able to pay them back. The key to success is preparation. You need a solid plan showing how helping you will help their bottom line.
Franchisor financing
There are many franchisors that offer some degree of financing. Although financing 100 percent of a franchise is not unheard of, 50 percent or so is more typical. Some franchisors offer interest-only loans, others offer loans that require no payment for the first year, some finance everything, and others finance the franchise fee only.
It all depends on you and the franchisor. You need to ask. It is also true that most franchisors have relationships with lenders, so that may be another possibility.
Other v
When structuring a loan or investment deal, keep these points in mind: Ask for more money than you need. If the investor balks and negotiates down, it will not be a crisis, and if not, you will have more than enough. Get the interest rate as low as possible. Everything is negotiable. Work to get as much time as possible to repay the loan, with no prepayment penalty.
Business incubators
Business incubators are partnerships among public, private, and non-profit organizations that work to promote entrepreneurship and small business growth. They do this by providing inexpensive space from which new businesses can be launched. Incubators usually offer free (or very inexpensive) administrative service assistance, legal help, business planning, financial advice, and so forth.
There are so many programmes that are waiting to lend a helping hand to start-up’s in Sri Lanka. A recent website listed 27 programmes and platforms that support and guide Sri Lankan start-ups. Whether you are looking for funding, mentoring, incubation or simply knowledge, you’ll find something useful here that can aid you
(Lionel Wijesiri is a retired company director with over 30 years’ experience in senior business management. Presently he is a freelance newspaper columnist and business writer.)
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