Nov
19

Funding a Start-Up

Q: How much money do I need to start my business?
A: Start with nothing, and work with as close to nothing for as long as possible.

While this might not be the answer you expected, small budgets force you into really finding a focus. Don’t go out and try and find more money, even if you can afford to self fund your start-up or can get money from family or friends right away. Instead, give yourself just enough to get going, and use the limits that imposes to motivate yourself into having a business that has real paying customers as quickly as possible.

As a college student, when I started my business, I used one credit card with less than a $10,000 limit to get from zero to $300,000 in sales. I bought only what I needed on my credit card, sold it and turned the profits back into the business to buy more product as often as possible. All of my office supplies, phone bills, advertising etc. I paid for out of cash flow.

If the profits I generated did not cover the cost of what I needed to spend on my overhead, I either did not spend the money or re-evaluated what I needed to earn on the items I was selling to be able to afford whatever it was I thought was critical to reaching a new higher level of profitability or increase my customer base. I used this very small line of credit, on my credit card, to guide the choices I made by only buying the products I needed that generated my profits.

This strategy worked to grow my business profitably. It was challenging but I found myself finding ways to grow my business with very little money going to things that were not essential to create customers and profits. As both my customer base and profts grew, I was able to get a bigger line of credit from the vendors whose product I was selling. From learning how to use my own credit card in a very disciplined way, I did the same thing with the credit those vendors gave me and grew my business quickly, using the same strategy, to over a million in sales.

The key is to never have available more than you absolutely have to have until you can get comfortable with knowing what is the absolute best use of the the excess funds you generate- your profits- from what you sell.

There is a saying that having too much money makes you stupid, and I have to agree with this comment when it comes to starting a business. The biggest and most costly mistakes made are those in the beginning so make them as small as possible by limiting your funds so that you can learn from them but that they won’t destroy your venture.

If you have a running business with real customers and you’re paying all your bills, you are much more likely to find your next source of funding to grow your business than if you need that money in order to survive or succeed. When you can say “we could accelerate our growth with more money” it is much more compelling than, “I need your money or our doors will close.”

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