It’s a new word to me, and probably one of my favourite new words for 2016. I like the sound of it, but I’ve never heard it used as a verb before. What does it mean? Well, it comes from the term “pulling yourself up by your bootstraps”, meaning attempting an impossible action.
These days, new businesses have many potential ways of funding. You could go to banks for a loan. If you’re a tech start-up or have a profitable idea, you may use Venture Capital investors. You could rely on a so-called “Angel” – usually a friend or family member with a lot of liquid cash to help you invest in your idea.
But now there is Bootstrapping. A whole new way of funding your business. It means to self-fund without external financial support, using your own funds and investing minimally. If you intend to start a freelance content writing business (as I did) by bootstrapping, you need to prepare to make a lot of sacrifices and cutbacks.
Matt’s Essential Guide to Bootstrapping
This may not work for everyone, but I’m going to go through how I funded my business venture in 2013.
Work out how much actual capital you have, and what you have in the way of assets. You’re going to need all of it. I sold my car (I’d moved back home so didn’t really need a car, and lived close to a railways station if I wanted to see friends or meet potential clients, the latter of which I could claim back on expenses). I was single – well, divorced, so my time was my own too. I used the last of my wages squirrelled away from my previous employer. Also to my name was a 3 year old laptop that was on its way out but still fit for purpose.
Social life Sacrifice
Every penny you have will need to go towards your bills such as rent, utilities and so on. You will spend a lot of time at home. Regular takeaways, meals out, day trips are – unless you hit the ground running and have clients – out of the question. That’s not to say you should go without entertainment though. You need to get out, just do something cheap or free. Join a MeetUp group or just go for a walk. I happened to be dating at the time, so I became very familiar with the coffee shops around town.
Use Free Advertising
You don’t have a budget for promotion or marketing but you do need to get your word out. Start a blog (like this one) and social media pages. Focus on building an audience on the off chance that you may find some potential clients. Share articles of interest and write about your experiences. The point here is to generate exposure without spening any money. It’s tricky and you will need to put in the time and effort. Plus, scouring business sites for relevant articles to share is a great way to detach from searching for contracts.
Spend Only That Which is Necessary
No, you don’t really need your own domain just yet, or the full McAfee subscription at £80 per year. Nor do you need a new laptop or ipad. These are nice to have to claim on expenses, but if you aren’t making enough profit against which to claim it as an expense, it’s merely an unnecessary and costly expense – and lost money. Only when you’re profitable or only when an expense is necessary should you spend that money. Your aim is to keep your expenses as low as possible.
Plough Profits Back Into the Business
When you are at the point where you’re making enough profit to pay National Insurance and Income Tax (or the equivalents in your country), the end of that tax year is a good time to invest. It will reduce your tax burden. Towards the end of my first full year of trading, I went over the threshold for paying NICs. But I needed a new laptop as my old one had had a critical hard disk failure and it was eating batteries. It came at the right time and I bought a new laptop, knocking my profit back down beneath the NICs threshold. I got a new laptop rather than handing that money over the HMRC.
Benefits of Bootstrapping
For some types of business, bootstrapping is in no way possible. Some businesses require heavy initial investment, particularly in technology. Freelance writing is not one of those industries. I accomplished it with an elderly laptop and cutting my outgoings to the bare bones. What are the key advantages?
- No loans or interest to worry about: Loans are payable within a specific time frame. If you don’t grow in that time, your loan (and its interest) is effectively hamstringing your business. When you bootstrap, you have much lower costs.
- It teaches caution: It teaches you to make wise business decisions and scrutinise every purchase for its utility – even when you are profitable you will retain this cautious mind-set.
- Organic growth: Although growth may be slow, you can only invest what you have. That means you will invest slowly, carefully and with a safety net at your back. Few other businesses have this safety net when expansion is fuelled purely by its own profits.
So that is my story of bootstrapping to start a business. Now let’s hear yours! Particularly, if you have any advice of things not to do as well as tips on how to accomplish your goals would be great.