Starting a business is hard, especially when you think about money. You want to make sure you have enough capital to get your company started and that it will be successful. Once you start it, there are many more things to think about such as marketing, location, and hiring people.
However, you also don’t want to be overburdened by a lot of debt. One of the best financial strategies is bootstrapping.
What Is Bootstrapping in Business?
Bootstrapping in business is when someone starts a business with the money they have on hand, or through loans from family and friends. They might also use their own time to develop an idea into a company.
The term “bootstraps” comes from the story of a town hero who could pull himself up by his own bootstraps. Bootstrapping is sometimes referred to as “self-funding.”
Business owners bootstrap for different reasons:
- Some do not have the money saved up to start a business, so they use loans and/or credit cards.
- Others may want to avoid investors, who will often take control of the company.
- Bootstrapping may also help businesses save money by reinvesting revenue back into the company instead of paying investors interest on loans.
3 Bootstrapping Ideas to Lower Your Biggest Expenses
While bootstrapping does not involve seeking outside funding, it can limit a business’s growth because there is often only enough money for what is necessary. Learning how to skimp on a lot of expenses can, therefore, help add more funds toward starting an enterprise.
Here are ideas you can explore:
1. Save as Much Money as You Can on Your Mortgage Payments
Mortgage payments can make up as much as a third of your household expenditure. The good news is you can consider different ways to make them more affordable for you, if not lower your monthly repayments.
For example, you can look for refinance mortgage loans. This way, you can take advantage of a lower interest rate. However, if you’re not interested in refinancing your mortgage and you can’t pay it off completely, consider getting a shorter-term loan with a 15-year or even 10-year repayment period to lower your total interest payments.
You can also consider a biweekly mortgage, which means you make payments every two weeks instead of the usual monthly repayment. One of its benefits is that it makes the debt less overwhelming. It may also help you pay off your mortgage in a shorter amount of time or even early, depending on how much you can afford to add monthly to the payments.
Another option is to take out a line of credit home equity loan and use it to make a lump sum payment for your mortgage principal. This can be cheaper than making partial mortgage payments. However, keep in mind that any funds you pay into the principal are not truly yours since you have to pay interest on them as well.
Lastly, maximize your tax deductions, if you can itemize. You can reduce your taxable income with mortgage interest, property taxes, and other allowable deductions.
2. Start Your Business in the Garage — or Your Home
Although fewer people are renting commercial spaces these days, partly due to the COVID-19 pandemic, it didn’t stop the costs to continue inching upward. The average lease rate increased by almost 1.5 percent, year over year, in March 2021. A rental space, therefore, could cost you nearly $40 per square foot.
If you have a garage, consider using it as your business space at least for now. This way, you can keep the items and tools in there to a minimum and save on storage costs. You can also control the temperature for ideal working conditions, which allows you to save money on heating or cooling bills.
3. Think Twice about Buying a Brand-New Vehicle
While it seems logical to buy a new car for your business, however, this may not be the best decision you can ever make:
- The costs of brand-new vehicles are surging. This is partly due to a shortage of microchips, a critical component of automobiles, which then drives the shortage of vehicles in the market. In turn, the demand is high, but the supply is low. AAA reported that the average price of vehicles now is almost $33,000 or about 5 percent higher than in 2020.
- Depreciation is high during the first few years of the vehicle. Newer cars depreciate way faster than used ones. In the first year alone, it could already lose about 20 percent of its value.
Instead of eyeing the latest truck or SUV, consider what Dave Ramsey often says: buy the best pre-owned vehicle you can afford. In the process, you don’t have to allot a huge chunk of your cash flow to auto loan payments and incur a lot of depreciation. However, you can still negotiate on your auto insurance and find a vehicle that won’t cost you a lot on maintenance.
Bootstrapping won’t help you achieve immense growth, but it’s a good way to start a business since it helps you keep as much of your cash flow as possible. It leaves you with plenty of wiggle room and more control over how you want your company to scale.