Funding Your Business on Your Own? Learn From These 7 Entrepreneurs

Business owners don’t know what they don’t know. The
beauty of mistakes, however, is that they make you
infinitely wiser. Smart business leaders won’t flinch
when they lose a client, customer or potential revenue
source -- they’ll reinvest that mistake into their own
learning.
What new business owners can’t afford to lose, however,
is money. When you’re bootstrapping -- using personal
savings to fund your new venture -- you’re putting your
financial future on the line. Lost money can directly
impact health, future, and immediate well being.
Related: The Ins and Outs of Raising Money From
Friends and Family
With approximately 543,000 small businesses launching
each month, the harsh reality is that the majority of
these will fail. So if you’ve invested money into your
business, there is a distinct possibility that you’ll lose
everything. But that doesn't have to be the case.
The best way to prepare for the worst is to learn from
successful bootstrappers who have been there before.
Below are seven financial mistakes to avoid, especially
when self-funding your new venture.
Related: How to Be Smart About Your Spending in 2014
(Infographic)
Hiring too aggressively
Image credit: mycorporation.com
Tip contributed by: Deborah Sweeney of MyCorporation
Company type: Online legal and business filing service
for entrepreneurs and small businesses
“Hiring too many employees can be an expensive
problem. Being in California where the cost of
employees such as insurance coverage is very high, the
risk of taking on too many people is significant.”
Advice: Sweeney recommends pushing existing team
members harder, giving raises and making sure that
there is a definite need for additional staff before hiring
the next employee.
Idealism about costs
Image credit: PK4media
Tip contributed by: Tom Alexander of PK4 Media
Company type: Online advertising
“One of the biggest lessons I learned was that any
company will cost approximately 20 percent more time
and money than originally planned. There are always
issues that arise that cannot be calculated from the
beginning, such as slow vendors, extra cost and time to
build the technology.”
Advice: Alexander encourages business owners to
operate with a buffer. Expect to spend more than what
you originally plan so that unforeseen expenses don’t
yield a loss.
Branding too soon
Image credit: theuncagedlife.com
Tip contributed by: Rebecca Tracey of The Uncaged Life
Company type: Small business coaching
“I spent $1,000 on a copywriter when I started my
business and three months later my direction had
changed so much that they brilliant copy was virtually
useless.”
Advice: Tracey encourages clients to wait at least six to
12 months before fully investing in copywriting and
design services. That way their branding will be spot on.
Failing to calculate burn rates
Image credit: projectmona.com
Tip contributed by: Steve Spalding of Project MONA
Company type: A platform for multi-disciplinary thinkers
“The biggest mistake I've seen is not properly defining a
burn rate. A lot of small business owners think that the
burn rate is just server costs,office space and the fixed
expenses associated with lawyers, accounting and the
rest. What they ignore is that committing to building a
small business means committing to deferring your
income for an indefinite period of time as that business
grows.”
Advice: Spalding encourages business owners to
acknowledge that they will be deferring income for an
indefinite period of time and to incorporate rent, food,
health insurance and utilities into their business’s
financial plans.
Not keeping your spouse in the loop
Tip contributed by: Sean K Murphy of SKMurphy
Company type: Offers customer-development services
for startup entrepreneurs.
“The biggest mistake you can make is not keeping your
spouse in the loop if they are working and keeping the
lights on while you bootstrap.”
Advice: Shafter encourages business owners to treat
their spouses as investors or board members with whom
you can share detailed accounting plans.
Spending too much money on features
Image credit: Mattias Guilotte via Twitter
Tip contributed by: Mattias Guilotte of Coworks
Company type: Creative services
“When we started building Coworks, my co-founder and I
hired two developers and spent between $30,000 and
$40,000 building a pilot. This version of our product
empowered us to get seed funding but our time and
resources would have been better spent talking to
customers. We should have been much more lean with
our budget. We could have done more with less.”
Advice: Guilotte encourages business owners to spend
more time planning their budgets. Focus on executing
high-impact initiatives. Features can be modified later.
Shortcutting your talent
Image credit: realtymogul.com/blog
Tip contributed by: Jillienne Helman of RealtyMogul
Company type: A marketplace for accredited investors
looking to buy shares of real-estate property.
“One of the biggest challenges of bootstrapping is
attracting high-quality talent. If you cannot pay top
dollar, how do you get amazing talent intothe company.”
Advice: Helman is able to attract top employees by
offering equity. Every employee at RealtyMogul is a part
owner. The company sets aside a piece of the company
for stock options.