When you launch a business, one of the most important questions to answer is how you'll fund it. Today, there are myriad options to explore, ranging from high-risk/high-reward venture capital funds to more conservative small-business loans from banks.
That said, according to Fundable, only 0.05 percent of startups are venture-backed, and less than 1.5 percent receive funding from small-business bank loans. In reality, the majority of all new businesses are funded in part by the founder's personal savings and credit. While self-funding may seem like uncharted waters in today's glitzy startup scene, Fundable notes it's actually how nearly 6 out of every 10 entrepreneurs get started.
I chose to self-fund my wellness business, Golde, when we launched in 2017. I didn't feel ready to take on the pressure of outside investors, and as a brand-new company with no income history, we weren't eligible for traditional small-business loans. Since then, we've doubled our revenue every year, and have inked partnership deals with some of the biggest retailers in the beauty and wellness space, like Sephora and Goop.
Three years later, we're just starting to open our business to investor conversations, and I'm so grateful that we took a more sustainable path to getting started. While the journey has been extremely rewarding, it wasn't without its hardships. Here are a few tips for self-funding your startup:
1. Evaluate if self-funding is right for you.
While going it alone is certainly noble, it's not always prudent. Take a careful look at your business plan, and see if self-funding really makes sense. If you have massive startup costs in order to launch your product, you might be better off talking to investors or launching a crowdfunding campaign. You might also want to skip self-funding if you're in a personal cash pinch, or have other significant financial responsibilities, like student loans or a mortgage.
2. Know your numbers.
When the only cash in the bank is your own, you really can't afford to miscalculate your operating costs. Build a financial model that's sophisticated enough to capture a holistic snapshot of your business, but simple enough for you to update and manage on a monthly or weekly basis.
3. Pay yourself, eventually.
With a new business, it's easy to always put other investments ahead of your personal needs. Why take a salary when you could put those funds toward launching another product or hiring another person? While you may have to forgo anything close to market rate, make sure you start paying yourself sooner rather than later. You can then build your business around your salary allocation, instead of putting it off indefinitely.
4. Be open to change.
As your business scales, you may find that relying on your profits alone is not enough to sustain your rate of growth. This could happen after a few months or several years. Be open to exploring other methods of funding, whether that's investors or a small-business loan.