From Personal Savings to Business Success: Mitigating Financial Risk in Self-Funded Startups

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By Beau Peters

Special to Financial Independence Hub

Unfortunately, it’s rare for a startup to be successful long-term, let alone make it out of its first year alive. You’ve probably come across a lot of research that supports these claims. However, the information isn’t to scare you.

Instead, it’s to give you a realistic picture of how much it actually takes to be successful. If you don’t want your startup to be a part of the above research, you must first understand what contributes to a startup’s failure.

For many, it’s the financial challenges. Many startups don’t get enough money to cover what they need to start their businesses, they don’t manage the money well once they get it, or both. And when a startup is self-funded, it adds another layer of financial complexity that can lead to a failing operation.

Let’s discuss how you can reduce financial risk in your self-funded startup and make it past your first year in business and beyond.

Understand what it will Take to Fund your Business

Unless you’re someone with unlimited financial resources, how much money you can put into your startup is limited. You only have a certain amount to get your startup off the ground and maintain it until you turn a profit.

So, understanding what it will take to fund and run your business is critical. First, figure out what it will cost to launch and maintain your startup. Cover the following:

  • What are your product development costs?
  • Will you be renting an office space? If so, what are the associated expenses?
  • What are the cost of tech tools and software?
  • Will you have labor costs?
  • What will a marketing campaign for your launch and business cost?
  • What will your monthly expenses be?
  • What are your tax obligations?

Write down any other expenses unique to your startup that you’ll need to account for. Once you determine what the financial impact will be, you can create a realistic budget.

Create a Realistic Budget

To mitigate financial risk in your self-funded start up, you need to cling to your budget. Sticking with your budget ensures that you’re running your business within your means, can save some, and also afford your personal expenses.

Take the monthly business expenses you listed above and insert them into your budget. After that, input how much you’re bringing in each month. The hope is that your business pays for itself in the future. But factor in the personal money you put in to ensure your business stays afloat for now.

You’ll also want to detail how much money you’re allocating to business savings, an emergency fund, your tax account, and what you’re paying yourself.

Subtract your costs from your income and see what you have left over. If you’re in the negative, your next move is to find ways to cut costs. If you’re in the positive, consider investing the remaining amount or reinvesting it into your startup to keep growing.

If you’re strict about anything in your business, it should be your budget.

Establish an Emergency Fund

We briefly mentioned an emergency fund above. But establishing one is crucial, especially for self-funded businesses. One unexpected expense can send a self-funded startup into financial ruin. Mainly because funds are so limited that every dime is going somewhere and you don’t have much, if anything, to spare.

This approach sets you up for failure. You need a pool of money strictly for emergencies to ensure they don’t set you back. Allocate a portion of your business income each month to your emergency savings account. Set up an automatic transfer so you don’t have to think about it or see it come out.

Look for Cost-Effective Options when Choosing what you Need for your Business

Bill Gates and Paul Allen were working out of a garage in the early days of Microsoft. Bill Hewlett and David Packard did the same thing when starting Hewlett and Packard. The makers of Mattel started out using leftover wooden scrapes from their frame business to create dollhouses.

Many of the most famous companies today started out with what they had and pursued what they could afford instead of letting limited funding stop them. You should do the same.

Look for cost-effective options when choosing what you need for your business. For example, let’s say you’re looking for tech devices.

Internet of things (IoT) devices are a cost-efficient tech option. Installing automation tools like self-service kiosks require an initial cost, but they save you money in the long run because of their efficiency — and you don’t have to pay as many employees to work for you, which helps you save on labor costs.

Every purchase you make for your business should be weighed against your budget and you should always be looking for the most cost-effective option.

Wait for the Right Time to Expand your Team

Labor costs can add up quickly and before you know it, you’re drowning in them and have to start letting people go.

Waiting for the right time to expand your team is the best approach. Determine when it would be financially appropriate for you to bring employees on board. Then, when it’s time, make sure you’re doing what you need to keep them, as employee turnover can be expensive.

This means ensuring the recruiting and hiring experience is efficient and pleasant. You should also focus on the onboarding process for new employees. Make sure new employees:

  • Have a dedicated workspace
  • Go through training
  • Are introduced to their coworkers
  • Are comfortable with their role and responsibilities
  • Have all the tools and resources they need to perform their job duties

Finally, be sure you can offer a great employee experience, with a solid compensation and benefits package, wellness perks, great leadership, and growth opportunities.

If you need additional support with mitigating financial risk in your self-funded startup, reach out to a financial advisor. They can help you create a solid financial foundation that aids the growth of your business.

Beau Peters is a creative professional with a lifetime of experience in service and care. As a manager, he’s learned a slew of tricks of the trade that he enjoys sharing with others who have the same passion and dedication that he brings to his work. When he is not writing, he enjoys reading and trying new things. 

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