I am often the first one to recommend bootstrapping your business if you can. You get to make the decisions and call the shots. You don’t have investors trying to persuade you to do something you don’t want to do. And, you don’t have to share the profits.
However, there are some things you might want to be aware of.
Cash flow challenges
If you’re bootstrapping your business, you’re the one who’s going to be stressed when clients pay late and vendors don’t ship.
While it isn’t your fault, it definitely is your problem. I’d be a rich woman if I had a dollar for every story I have heard about almost not making payroll and the stress that caused.
In fact, this is probably the biggest issue that businesses struggle with, especially at the beginning.
And if you’re a solo consultant, you will probably experience lumpy revenue and feast / famine business cycles. It’s part of the “fun” of being your own boss.
Sometimes you can get pretty close to edge. A colleague of mine put out a sobering status on Facebook last year saying that if he didn’t find $1,000 by Friday, his landlord would probably start eviction proceedings.
He was looking over the edge. Friends and former clients jumped in to help, I am happy to share.
Paying yourself vs. reinvesting in the business
If you are building a business that you are hoping to sell at some point, you may opt to reinvest most of the profits back into the business to drive rapid growth. Your goal is to get to some point of critical mass so one of your competitors – or an outside investor – would want to buy your business.
During this time, you might decide to pull just what you need to cover your bills as a salary, and not what would generally be considered the right dollar amount for your role at the company.
Of course you are hoping to make this up when you sell the company, but that’s a maybe and not a sure thing.
Should you decide to exit your business, even though it made perfect sense as a strategy for growth, you will have to explain why you were making so little.
Several friends had major health challenges last year. One friend had to do a big GoFundMe campaign to help pay her sky-high deductible and follow-up care. This was truly a health and financial crisis.
Before you judge, many of us have opted for high deductibles to save money on the monthly premiums. If you get a serious health diagnosis, would you have enough in reserve?
Most people don’t – entrepreneur or corporate employee. (Only 39% of Americans have enough savings to cover a $1,000 emergency.)
So that’s some of my thoughts about the underside of bootstrapping. The cons to the pros of maintaining sole control.
I always try to give both sides, and then you can make an informed choice that’s right for you and your business.