Why it pays to fund your own new business

Why it pays to fund your own new business

January 28, 2014 by Guest Blogger

Why it pays to fund your own new business/wallet wrapped in a shoestringRunning your own business can be exciting, draining, liberating, stressful and satisfying – all at the same time. Doing it without outside investment can be a risky proposition, but with risk comes reward. While some people might view having a small budget as a disadvantage when starting a business, in my experience it proved highly beneficial in the long run. 

I started market analysis consultancy White Space with my business partner Nick using just our individual hard-earned savings and no investor support or bank loans. We’ve now been running for eight years, rent a large office in central Oxford and work for more than 70 of the world’s most recognisable companies. There are many positives to funding your own business, and here I’m going to share some of my experiences and provide practical tips on how to overcome any disadvantages. 

Making the right decisions that benefit long-term growth

As a business owner, you’ll be under constant pressure to make decisions that are critical to the growth and direction of your business. Make sure you are clear about your overall strategic direction by applying the following principles: 

  • Develop a clear business proposition by becoming an expert on the competitive landscape and identify what you can offer that differs from your competitors, but that also meets the needs of your market.   
  • Reflect on what you are good at and bring your skills, knowledge and experience to the table.
  • Have a clear vision of what you want your business to look like in five years time, who your clients/customers might be and what you want to be known for within your industry.

Surviving on a shoe string budget

Self-funding your business will cause you to reassess and prioritise your personal expenses. In the early stages, you will be surviving off very little, without the comfort of a steady income. Many financial survival tips are obvious, such as ‘save money wherever you can’. Here are three that are less obvious, but just as important:

  1. Develop a cashflow forecast. You need to know what you’re going to spend and when, and plot this against when you’re going to receive any income.
  2. Build a ‘buffer’. Start-ups generally fail because of cashflow problems, so holding a buffer or company reserve is a much better way of protecting yourself from this than a bank loan or an overdraft.
  3. Be wary of committing to too many capital outlays that aren’t aligned with your business strategy (ie lease or hire, don’t always buy).

When and how to accelerate?

Despite wanting to conserve your cash without any major capital outlays, there comes a time when a business needs to accelerate. A steady growth model is far more scalable and allows you to fully test the market before expanding further. You are also much less likely to fall victim to the cycle of ‘boom and bust’.

The right time for growth is when your business is in the middle of a successful period, with a few strong months just gone and a couple more forecast to follow. Be aware that expansion will eventually require additional resources to succeed, including labour, equipment, finances and more micro-management.

My experience has shown that the old adage – ‘revenue and staff numbers for show, profit for dough’ – still rings true. It can be exciting to feel like you are expanding, but never take your eye off the bottom line. For the vast majority of start-ups that are not expecting to be the next Twitter, this is the only true measure of success.

Self-funding your business can provide many advantages, from enormous personal satisfaction to being able to take a greater share of the spoils when your business succeeds. Making sure you have the right business proposition, the passion to make it happen and being realistic about what you can and can’t achieve are key to a successful and scalable business start-up model.

Blog supplied by John Bee, managing director of Oxford-based market analysis consultancy White Space.

Further reading

Comments

It may mean staying in the day job for a few months longer until website is properly up and running, but that's better than running out of money for some unforseen essential item further down the line.

Yes - fully agree. The satiosfaction is one aspect, but also the that the reality-check leads to a better set of foundations. No rich suger daddy makes us consider things in a more realistic manner. Good article!

Really helpful. Thanks John.  Good advice for my new business venture.

I'm a big fan of bootstrapping - keeps you totally focussed and it's the only way to really be your own boss!

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