One of the most important decisions a new business owner can make is how they’re going to finance their venture.
Bootstrapping, saving funds over years, borrowing from friends and family, taking out a bank loan and pitching investors are all viable options, but some will work better than others for your specific business.
To help you better understand your choices — and learn how others have tackled the challenge — we asked a panel of Young Entrepreneur Council members the following questions:
When you first started your business, how did you fund it? What advice do you have for entrepreneurs in the early stages who are considering their funding options?
1. Years’ Worth of Savings
“Like any endeavor, you need to have a proper, realistic budget in place. I had already been saving since my early 20s for my business, so when it came time to open up shop, I had the means to do so. Plenty of entrepreneurs take out loans and choose that route. It depends on what resources you have and how much you need.” – Stephanie Wells, Formidable Forms
2. Lowering My Living Expenses
“I’ve mentioned a number of times that I started my company remotely and from a small, inexpensive town. I think this is important for startups. You can use your own savings to fund your company and move to a cheaper area to save money. You don’t need to be in a big, expensive city to start your company.” – Thomas Griffin, OptinMonster
3. Sweat Equity
“I only had a handful of money in my bank to start my business with, which was just enough to get a cheap virtual server and my domain name. Everything else I built in my free time until I was able to build some traction and show there was real value before trying to raise any outside funding. Don’t try to get funding for something that you wouldn’t first fund with your own time and resources.” – James Simpson, GoldFire Studios
4. The Garage Sale Approach
“The garage sale approach is a simple, fiscally safe and effective approach to bootstrapping a services-based business. Early on, you focus on only selling services that you already have expertise in and that you can manually fulfill. This way your biggest cost is just your personal time. Stick to what you know, reinvest the profits into growing the business, and train people on your methodology.” – Nick Chasinov, Teknicks
5. Bootstrapping and Borrowing from Family
“Some business models are more suitable for bootstrapping than others. When you initially start with a consulting business, it’s easier to fund yourself. As you progress and look at perfecting a particular product you’ll need to seek funding. The only way to reliably do this and maintain ownership of the product is to seek out friends and family first.” – Nicole Munoz, Nicole Munoz Consulting Inc.
6. Local Business Plan Competitions
“Before we took on venture capital investors, we funded our MVP by competing in local and university business competitions. The competitive process provided us with really valuable feedback that we could use to iterate on the product. Further, we were able to use the winnings from each competition to make small investments in advertising the MVP to get additional user feedback and test ad channels.” – Colton Gardner, Neighbor
7. Inexpensive Freelance Labor
“Your first proof of concept can be done without a technical co-founder or a lot of money. Hire somebody on Upwork or a prototyping agency to create a super simple, stripped-down version (minimal viable product) that demonstrates your product. It can usually be done for only a few thousand dollars. This version can help you get traction with users, investors or recruiting talent.” – Andy Karuza, FenSens
8. Smart Spending and Connections
“When I first started my business, I partially self-funded it. I did this by budgeting for my expenses in order to cover the costs I needed. Additionally, I found some trusted partners who had solid backgrounds to join me. Having partners cuts down on the initial risk of creating and funding your own business, and budgeting helps ensure that your capital will not run dry before you get on your feet.” – David Chen, Sharebert
9. Using Revenues to Fund Growth
“Rather than wasting energy chasing alternative sources of funding, start selling your product to customers and slowly grow your company using generated revenue. In the early stages of your business, you don’t need to generate large amounts of sales. Instead, get early customer feedback to better improve your offering to position you for scaling sales further.” – Firas Kittaneh, Zoma
10. 0% APR Credit Cards
“I founded Alphametic Agency using 0% APR credit cards and divided payments during periods without interest. Cards were paid on time without accrued interest and the business established a great line of credit. It is worth noting that the growth of a service-based digital agency versus the growth of a product-based business is apples to oranges and my expenses were largely personnel-related.” – Matthew Capala, Alphametic
These answers are provided by Young Entrepreneur Council (YEC), an invite-only organization comprised of the world’s most successful young entrepreneurs. YEC members represent nearly every industry, generate billions of dollars in revenue each year and have created tens of thousands of jobs. Learn more at yec.co.