Maybe it’s time to rethink Bootstrapping

Is Bootstrapping right for your business?

Many entrepreneurs sponsor business ventures with their money by mortgaging your home, reinvesting profits back into the company, and managing your money carefully, without taking unnecessary risks.

This approach sounds safe, but it may not be the best way to grow your business.

Even if you have a fairly successful business model and steady profits for a few years, your startup business is still vulnerable to certain risks that can hinder financial security. its main.

Here are some things to think about when considering whether to expand beyond bootstrapping.

Funded businesses can be more successful

ONE research (published in the Journal of Corporate Finance) shows that external borrowing is beneficial for business success, especially for startups. The findings represent the work of finance professors Rebel Cole of Florida Atlantic University and Tatyana Sokolyk of Brock University in Ontario.

According to their findings, firms using external capital generate four times more returns after three years than firms using equity capital. In addition, companies with outside capital are also more likely to survive those first three years in business.

Financing can not only help a startup survive in its early stages, but it is also useful for seasoned businesses that want a financial advantage over their competitors. Additional funding opens the door to funding growth strategies and has the potential to attract skilled investors.

Investors want your business to thrive

“Getting others interested in your success can provide top-level help,” says Alejandro Cremades, co-founder at Panthera Advisors. “It can bring board members, shareholders, influencers and big deal creators with the keys to major sales channels into your corner and will help you.”

This involvement can be a good thing or a bad thing. Bad advice can hurt a business, but it’s pretty easy to avoid if you’re really interested in finding an investor whose vision and vision for your business match yours. .

Getting an investor can be a real “privilege,” Bryan Watson, in partnership with Toronto-based consulting and venture services firm Flow Ventures. They often bring valuable inputs and connections. “But it’s a relationship, so you have to find the right fit for your company.”

Finding the right investor will take some time, but the benefits can be wide-ranging. One of the most important benefits of getting external financing is the opportunity to build credit.

Businesses need to build credit

Building credit is something many businesses neglect to do. Credit is an important metric for lenders in deciding whether to finance a certain business. Because of this, businesses without strong credit are at a disadvantage.

In fact, many businesses “identify lack of finance as the main cause of [their] business, “according to 2016” Global Entrepreneurship Monitor Report. This potential shortfall is why it’s so important to get good credit. In times of tight finances or unexpected expenses, a high credit score will make it easier to get approved for the necessary financing.

An added benefit of business credit building is the ability to make a loan in the name of a business instead of putting personal credit first. You never know when the financing might come in and save the day, so strong credit is a safety net worth building.

Consider funding your growth

Personal finance website RateHub recently raised its first round of funding in seven years. When asked why, the founder Alyssa Furtado “We happened to be comparing insurance and we knew it could be a multi-million dollar business — but we couldn’t afford the excess,” says.

If you cannot scale your business because of lack of capital, outside investment can be a good option. Older businesses have the added benefit of long-standing success to recommend to investors. They are more likely to attract investment because they have a concept with a proven track record.

As shown in Furtado’s example, an investor buys into the concept that is the foundation of a strong relationship — a relationship that can help your business grow when and if you leave the days behind. your startup.

Leave bootstrapping behind

Business owners starting a business have to push a lot harder to bring their ideas to life. That means working longer hours and managing more roles with a smaller budget to make key growth decisions.

Many independent business owners boast a good income and are especially proud to be the sole owner of a completely self-financed company. That feeling is understandable, but staying self-funded is often not the best long-term plan. Think about what your business could do with a larger amount of capital behind it: growth potential, hiring potential, equipment purchases.

All of these cost money that you may not have. If so, you should take some time to consider potential investors and lenders. After all, nothing speaks to growth like having more money in your bank account.