Shoestring Business Startup

Starting a business on a shoestring budget can actually help a business long term by developing financial discipline from the beginning.
Starting a business on a shoestring budget can actually help a business long term by developing financial discipline from the beginning.

Shoestring Business Startup

A shoestring business startup can be an easy thing to do. The catch is making a Return-On-Investment (ROI) quick enough that the business (and you) can survive. A successful business usually takes two years to get established, while a third of all businesses fail within those first two years. That means a business is trying to both survive day-to-day while building for the long-term. There will be many instances where these two goals will be at odds. Being capitalized to make it the first two years may not always be possible. Actually, that would be the definition of a shoestring business startup- a new business that is using its revenue to fund its operating expenses as opposed to funding via debt (business loan, investors, etc.). And many have been able to survive without start-up capital and live to tell the tale.

The Benefits of Foregoing Debt

Financing a business is key. However, that does not mean that the financing has to be from some form of debt. While acquiring startup business financing can help a business survive those first two years, it can also be its heaviest burden. There is the issue of repayment while also covering regular operating expenses. The truth is that most business start-ups windup spending their initial capital on unnecessary items anyway.

Starting at home (or a very modest office) with as little as possible is often the best option. This is especially true if a business is some form of service business. Obviously, some businesses require a storefront like a restaurant or a retail store. But even there a restaurant could be started as a catering business. Or a retail store could start selling products as an internet or mail-order business first.

Keeping a business funded with revenue as it is earned has the benefit of keeping a business fit from conception. This hand to mouth existence has the benefit developing discipline, the discipline to question every expenditure for value and necessity. That kind of discipline will be vital throughout the life of the business.

Achieving Shoestring Business Startup Profitability

A new shoestring business startup will need to measure business expenses. And a true startup will need to estimate costs because they will have no real data to base expenses upon. This leaves one with speculation and that is never good. Do not be overly conservative. However, it has been my experience that most new business owners are too liberal in their expected expenses. They can do with much less than expected, the shoestring in shoestring business startup.

Without experience new entrepreneurs may have a misperception of what being in business is. In their minds being in business means having a $60 per month business landline, when they will never be in the office to take a phone call. A $30 per month cell phone (with unlimited calling) would be more cost effective. They run to Office Depot to buy a box of Bic pens when they have drawers full of give-away pens at home. Understand that as an entrepreneur, the owner will ultimately be paying the bills. That means excesses or "necessities" learned when they worked for someone else, when someone else was paying the bills, needs to be identified and then unlearned.

A shoestring business startup is hyper-vigilant about spending money. Every penny is hard to get out of the shoestring entrepreneur. Resourcefulness is a strength; the new business owner learns to prosper with what they have, rather than continually hemorrhaging money. Remember an entrepreneur is in business to make money and not to spend it.

What to Do With Shoestring Business Startup Profits

After paying business expenses the money left over is profit. The biggest question a shoestring business startup will have is what to do with it? The only options are a variation of either spend it or save it. Which does one choose? The best answer is to develop a plan before the business has begun. What will become of the profits?

There is nothing to say that a business cannot both spend and save profits. First, designate a percentage that will be paid to the owner. Perhaps ten percent or half of all profits will be withdrawn from the business and given to the owner. There is nothing wrong with this, and is a strong motivator, it keeps a reminder why one is working so hard.

However, I do feel that a lion's share should be reinvested into a business. Saving cash in a business is not a good idea. This not to say that building capital reserves is not a necessity. Nor is it contradictory to the earlier statements about a shoestring business startup being thrifty, if not downright miserly. There will always be unexpected expenses that a reserve fund can cover. However, in good times establishing lines of credit with banks is preferred to keeping cash stale in reserve. These lines of credit can be used for those unexpected expenses. It also keeps the cash working and not sleeping. Stashing funds, just because something might happen, will stunt shoestring business startup growth.

So, where do you put the cash? Place it into things that will make the business even more money or will help cut expenses immediately and in the long-run. It could be put into new equipment, marketing campaigns, and/or additional employees. Whatever can help a business grow and scale its efforts. On this point be careful. For example a startup commercial painter could start out by renting an air sprayer for each project, rather than laying out the cash for a new sprayer. As the sales grow and revenue comes in it would be advantageous for the business to buy its own sprayer. However, the sprayer doesn't have to be new; a used one may serve the business well while saving money.

If one can be thrifty and resourceful there is no reason that they should fear being a shoestring business startup.

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