When it comes to changing course, money – or rather the lack of it – stops a lot of people in their tracks.
So to help, I’ve put together a five-part series on creative ways to fund your dream.
You may not be able to take advantage of every idea or resource. In fact, none of the five ideas may be right for you and your personal situation. You need to read them anyway. Why?
First, the strategy that may not be a fit for you today may indeed be the one that launches your dream a few years from now.
Second, just knowing that options truly do exist will remind you that your crazy dream is not so crazy after all.
And finally, one of the ideas or resources you see here may be perfect for someone you know. Pass it on and you just might change a life!
Strategy #5: Know Your Options
Ever wondered how most successful small business owners get the money to launch?
Entrepreneur magazine did and what they found might surprise you!
Of businesses less than five years old, with annual sales in excess of $1 million, a whopping 69 percent started out by using their own money to fund their business.
Going it alone, pulling yourself and your business up by your bootstraps otherwise known as “bootstrapping” is all about getting things done while spending as little as possible and not raising outside financing.
That’s why the first four ideas in this series focused on small ways for you to bootstrap your dream. (If you missed these, then start here.)
But bootstrapping isn’t your only option.
You have five basic options for finding the money to fund your entrepreneurial dream:
OPTION 1: Using Your Own Money
- Bootstrapping (see Ideas 1-4 in this series for ideas)
- Using credit cards
OPTION 2: Debt Financing – Borrowing with the expectation that you will repay the loan
- Borrowing from friends and family
- Borrowing money from a bank
- Borrowing from a micro-lender
OPTION 3: Equity Financing – Getting others to invest in your dream in exchange for a financial stake in your business
- Friends and Family
- Other “Small” Investors
- Angel Investors/Professional Investors/Venture Capitalists
OPTION 4: Getting a grant
- Private Grants
- Government Grants and Other Assistance
- Grants for Social Entrepreneurs
- Grants and Funding for Creative Types
- Grants for Non-profits
OPTION 5: Crowdfunding via sites like Kickstarter or Indigogo
- Friends and family
- Your social network
- Total strangers who support your dream
You can stick to just one option. For instance, I bootstrapped the start-up of Changing Course and then continually re-invested earnings back into the business as needed.
Or you can put together various combinations.
Say you wanted to open an art gallery. You could kick in some of your own money, get a loan from your Aunt Gracie, and secure a grant from a local arts council.
So what option do successful small business people use? According to that same Entrepreneur survey:
- Private investors — 21 percent
- Friends and family — 21 percent
- Line of credit from a bank (presumably using their home or other property as collateral) — 18 percent
- Bank loans — 12 percent
- Credit cards — 10 percent
Know How Much You Need
Before you can even consider how you’ll get the funds, you need to know how much money you need.
If your goal is to start a small, one-person, home-based business as say a freelance writer, consultant/coach, or web designer then you’ll probably need relatively little start-up money. In this case Option 1 – bootstrapping is the way to go.
But what if you have what I call a “Big Dream”? In the past I’ve worked with clients who wanted to:
- Open a dude ranch in the Canadian Rockies
- Start a non-profit to help impoverished people in South Africa sell their crafts
- Renovate a historic building into a multi-purpose art space
Big dreams tend to involve things like looking at things like renting or purchasing property, hiring employees, finding donors, travel expenses, and/or purchasing equipment or inventory – all of which require more start-up capital.
So here you’ll probably need to borrow money, find investors, seek corporate sponsorship, or all three.
In other words, the amount of money you need to change course depends on your business needs and your plans for growth.
Assess Your Entire Situation
Once you know how much money you’ll need, you need to decide which funding option is right for you. Which strategy you choose depends on three things:
1) Your current financial obligations or circumstances
2) Your comfort level with risk
3) How quickly you want to change course
- If you have a couple of kids about to enter college you’re in a very different financial situation than if you’re a 21-year-old who just graduated college and is living at home
- If you’re the sole provider of a family, either as a single parent or part of a two-parent family, you’re in a different situation than someone who is only responsible for themselves
- If you’re an individual that makes a lot of money but are drowning in credit card debt, you face different challenges than if you earn far less but spend within your means
- If you find yourself faced with a “once in a lifetime” chance to purchase a special piece of property or a coveted business that’s up for sale then you may be willing to take out a loan, court investors, or otherwise assume a greater financial risk in order to seize the day
The Benefits of Bootstrapping
Even if you ultimately decide to use other options, starting out, the easiest way to fund your new business is to use your own money.
After all, you don’t have to fill out any applications or worry about your credit score. There are no investors to try to woo. And you don’t have to worry about repaying anyone.
At least that’s what Shep and Ian Murray discovered.
After graduating college the two brothers felt stifled in their respective Manhattan desk jobs. They longed for the laid back days of summer they’d spent as kids on Martha’s Vineyard.
So inspired by the mega-success of another Massachusetts island business Nantucket Nectars, they quit their jobs in 1998, took a $7,000 cash advance from their credit cards, and launched designer neck tie business Vineyard Vines.
In true bootstrapping style, they ran the business themselves for the first two years. Today they have a whole team of employees.
Things have really accelerated in the last five years. The Murray’s went from a single Edgartown retail store to:
- Having their ties worn by every living president as well as other high-profilers as John Kerry, New York Mayors Rudy Giuliani and Michael Bloomberg and financier Warren Buffett
- They’re on track to generate $100 million in sales thanks in large part to the decision to invest in their business by expanding to offer a complete clothing line for men, women, and children
- Doubled the number of stores to 20, including new locations as far away as Plano, Texas, and Newport Beach, California
- And signed licensing deals with the NFL, NHL, and MLB
- And Vineyard Vines’ clothing is the “official style” of the Kentucky Derby
Not bad for a couple of bootstrappers!
Whether you want to build an empire as the Murray’s ultimately did, or are just looking to start a small self-sustaining business, the fundamental steps to funding a business remain the same.
Step 1: Believe in your dream
Step 2: Find a way to fund it that best fits your situation and goals
Step 3: Take action!
Ready to start bootstrapping your own dream? Start with one of these strategies from the entire 5 Ways to Fund Your Dream series: