The pros and cons of funding your company
When starting a new company, there’s the eternal question of whether you should fund it yourself or look for the startup capital elsewhere.
Most owners tend to use a hybrid of the two methods, but this leaves them with several problems.
After all, should you really be putting your own money into a business idea?
Not everyone has enough money to put down on their own business idea, no matter how many side jobs they have or how much they save. That doesn’t mean they should jump into bed with the first, second, or even third investor that comes along. It may be worthwhile to first start as small possible when trying to finance their companies.
There are, however, several pros and cons to investing your own money in your own company. Below are a few reasons why you should and shouldn’t invest in yourself.
Pro: No outside risk
The glaring benefit to financing a company yourself is not having to worry about someone else’s money. This allows you to make a range of financial decisions as well as pocket more of the profit without the need of interest or shares. It also alleviates unwanted stress and uncomfortable meetings at the end of the month when you’re unable to pay back a portion of the loan.
By using your own money, whether it be from savings, an overdraft, or a credit card facility, you are fully responsible for the financials of the company. Even though you may be dealing with credit card interest, it’s not the same as having the pressure of managing money from friends, family, investors, or the bank.
Pro: You have complete control
The largest benefit to using your own money and not someone else’s is the freedom to run the company however you see fit. You won’t be held accountable to anyone else if the business doesn’t turn a profit or doesn’t reach its target for the month, and there are no shareholders to keep happy, either.
This allows entrepreneurs to find their own way, even if they’re new to a specific industry. It’s a great learning tool, but it can come at a high cost if something goes wrong.
On the other hand, this can be looked at as a negative as well. As ideal as it is to have your own business, sometimes you need help and outside input. If it’s just you and you alone running the company, there’s a chance you’ll become burned out and even make the wrong decisions if there’s no one else to consult with.
Con: Your money is at risk
If your company closes down, you could lose everything. It doesn’t matter whether it’s money from a savings account or a retirement fund that you’ve cashed in – that money is important to you.
There is a chance that you could lose not only a large amount of money but everything you own as well. The decision to bootstrap your company is not an easy one to make. In fact, it may just be easier to speak to the bank manager about getting that R5 million loan, or even look into corporate finance. Another option is to look at pitching competitions or Angel investors as these come with fewer strings attached, though you may have to give up some equity instead of interest.
Con: Slow growth
And, finally, there is the downside of slow financial and business growth. By injecting your own money into the company, you may not have enough to get things off the ground. This will stop you from being able to offer the full product or service you intend you sell. Not to mention that no one person can run a single company – you need staff, equipment, and marketing, which all cost a lot of money.
By looking for outside finance, you will often be able to tap into the bank or investor’s knowledge when it comes to business. They will help and mentor you in order to accelerate your startup and expand as much as possible.