How To Finance Your Business Without Going Bankrupt

I just had an online discussion recently with someone who wanted to start a business but wanted to quit his job first before doing it full time. He wanted my advice. And I was candid about how I felt about it.

I know this kind of approach is favored by some. They believe that if you’re there 100% for your business, then there’s no way you can fail! And for some, that works. Still, it is a very risky move, especially if you have a family counting on you to bring home the bacon on a regular basis.

So this article seem to just write itself! Here are some thoughts on how to finance your business without going bankrupt!

Don’t Go Into Debt Trying To Finance Your Venture

A lot of people who start their own businesses tap their personal savings or assets to finance their start-ups. They pour their personal money into their ventures. But while your faith in your dream may be rock solid, your faith alone will not guarantee success. All start-ups are gambles. Sad but true. You must set a limit to how much of your own savings you’re willing to risk without risking the entire bank.

So how will you finance your business without going into debt?

Others go beyond their savings. Younger people who see their retirements as being a point far into the future, feel comfortable using their retirement accounts to finance their businesses. They believe that they have enough time to make up for whatever they use up today.

But keep in mind that while retirement accounts such as 401(k)s allow you to borrow from them, you are required to pay off that amount within a set period. Otherwise, you will be taxed for that early withdrawal.

IRAs are a different matter. Any withdrawal from those accounts will be taxed, as well as penalized.

Still, others borrow money to finance their businesses, and this can be risky, too, because, if you personally borrow money for this purpose, any failure may lead you to declare bankruptcy.

And then there are the credit cards. The interest on most commercial credit cards are higher than regular cards. Also, in order to apply for these business credit cards, most small business owners must provide a personal guarantee for those cards. So sometimes, even if the finances between your personal and business accounts are separate, you may still end up personally liable should your venture fail.

How About Getting Investors?

It’s natural to want to keep all the profit to yourself. This is one reason why most entrepreneurs starting a business do not like taking on investors. But ideally, this is a way for you to avoid personal debt.

It takes courage, humility, and great skill to go to friends and family, and to convince them that your idea is so great that they will part with some of their money on order to finance your unproven dream. And its not like you’re defrauding them. You believe in your product. You have a plan that you are confident will work. If they agree with your dream, then they will be more than happy to jump on your bandwagon with eyes wide open.

Be convincing. Be truthful. You don’t need to hustle them out of their hard-earned cash. The prospect of future gains is incentive enough!

The Small Business Administration

One resource you might want to look into are programs being run by the Small Business Administration (SBA). Especially if your a woman or a minority investor, there are special loans or grants that may be available to you.

Traditionally, minorities such as African Americans, Hispanics, and women, tend to have a harder chance of getting business loans approved than white male entrepreneurs. Asians are treated similar to white male businessmen when applying for loans, so they do not normally share the difficulties that other minorities go through when starting their businesses.

These all seem unfair, but these are the realities that many non-white male businessmen and women have to go through even today. That being said, there are federal and state programs that try to level the playing field by making certain programs available to minorities.

The SBA’s Business Development program gives minorities and women access to training, counseling, guidance and access to some contracting opportunities. There’s a federal BusinessUSA site that shows you loan programs and resources which you may be able to access.

Don’t Forget To Get Insured

Most couples who decide to go into business do not both quit their jobs at the same time. Usually, one partner stays at his or her job, and the other partner uses his or her health insurance coverage. But is this is not possible, consider purchasing a personal policy that will protect you and your family in the event of a severe illness or accident.

You may also consider looking into any specialized insurance coverage that may protect your interests.

Losing coverage is one of the pitfalls of quitting your job while your business is still in the process of building its legs. This is something to think about before taking that step.  Remember, your success won’t mean anything if your health is the price.

Set Boundaries

Most people who go into business are not financial wizards. So sometimes, they make the sort of rookie mistakes that opens their personal and family assets to possible liability if and when their businesses fail.

Financial experts will tell you that it is vital that you separate your financial accounts. It’s a good idea to set up a limited liability company (LLC) and a separate bank account for your business finances. This keeps a clear boundary between your business assets and your personal or family assets. This reduces your personal liability if your business goes south, and it makes tax submissions simpler.

Don’t Quit Your Day Job Just Yet

The most difficult phase of any start-up is at the very start of the venture. A lot of brave souls, however, choose to jump out of the plane without a parachute at precisely this point of their business. Some experts seem to agree that this is not the best decision to make at this point.

Think carefully about your decision to quit your full-time jobs while your business is at its most vulnerable state. Consider staying on at your work, either full-time or part-time. At any rate, once you’re on more stable footing, still consider keeping your skills intact, in case you may need to resume work at a later date.

Keep your professional licenses and certifications up to date because you don’t know when you’ll need them again. An old professor said it best. “Hope for the best, but prepare for the worst.” This does not mean you’re short-changing your start-up. It just means you’re pragmatic enough to accept when things don’t go your way.

“You’ve Got To Know When To Hold ‘Em, Know When To Fold ‘Em”

No one wants to call it quits. Especially when you’ve worked so hard to make your dream a reality.  But failure is the flip side of success.  And you don’t always know what you’re going to get. Sometimes, even the most prepared plans falter.

So when do you call it quits? At what point do you decide its time to throw in the towel. You have to identify in advance at what point you need to take these unfortunate decisions. When it is clear your business will no be successful, you need to salvage what you can, accept the outcome, and move on with your life.

Conversely, you also need to define that point by which you can declare that your business has successfully taken off. Not a roaring success, yet. But no longer at risk of bottoming out. It’s at this point when you need to devote some time and effort to building your finances, personal or otherwise.

Don’t expect too much out of your business, yet. Make sure that it gains strength as you move forward in the short term. Work with experts and professionals, if you need to, in order to help you understand how to move forward from here.

I’ve found that being part of a community of like-minded people really helps.  They motivate you, the veteran entrepreneurs are just happy to mentor you and make sure that you have the best tools, and knowledge, to help you succeed.

You have a choice not to go at it alone.  Check out my partners.  They’re called Wealthy Affiliate.  They’re the leading online mentoring and affiliate marketing training company in the industry.  I just know they can help you, too!

Working with professionals ensure that your efforts do not go to waste.  Sometimes, they’re all that stands between you and having to call it quits.

 

 

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