Credit cards have enabled more entrepreneurs to bootstrap their start up using their own personal funds. This can be a challenge because it increases the risks, if you should fail. These are the 5 challenges that will make or break this business strategy.
You Are the Bank
Of course when you are just starting out, you are the new kid on the block. Everyone is wary to help you out. Your start-up has numerous goals: brand promotion, finding vendors and creating a consistent cash flow, before you run out of funds. You also must establish both a business plan and financial record for future investors.
1. Frugality
Bootstrapping teaches you to be thrifty, frugal and prudent. When you are dealing with your own funds, you feel each profit and loss personally. While tapping your savings or credit cards for business purposes, you should probably cut your personal spending.
2. DIY
Most top CEOs are pampered with employees typing their correspondence, driving them to their meetings and even answering their emails. The bootstrapper might not be able to enjoy these luxuries. The do-it-yourself (DIY) mentality will emphasize the use of free tools like a loan calculator which you can easily access in the web.
3. Vendors
Initially, vendors will be hesitant to do business with your firm. You have limited funds, no business connections and no corporate history. Getting vendors to trust you is an important challenge that all bootstrapping entrepreneurs, must overcome.
4. Bank Account
Although, you start by accessing funds from your own personal checking or savings account, you should eventually create a separate business account. These segregated funds are better for accounting purposes and demonstrate your commitment to adhering to well-accepted organizational fiduciary duties.
Also, when you use your own business cheques and receive monthly banking statements, you create a solid financial record for the future. Investors will require you to provide evidence of your diligence in balancing the books. This will also be used to create your business credit score.
5. Cash Flow
Optimise your cash flow to gain the best results from bootstrapping. Your business plan should concentrate on “cash-rich” revenue to fill your coffers. Write out a solid business plan to estimate revenue and then achieve your goals. This shows that you are good at planning, development and execution.
The next step for entrepreneurs is to “show traction” with consistent profits. You need to generate cash flow and minimize burning through your cash reserves.
As more entrepreneurs use savings and credit cards to bootstrap their start-ups, the process becomes slightly easier. Each business owner can learn from his predecessor. There are also more free tools for start-ups found on the World Wide Web.
