Bootstrapping: doing business without a loan

Literally, a bootstrap is a leather loop on a boot that helps you put it on more easily. If you free up money for your company, doing business is also a bit easier. Do you want to apply bootstrapping? Then you can use your savings or your salary for your company, but there are more ways. Discover first the advantages and disadvantages.

Benefits and disadvantages of bootstrapping

Why would you choose bootstrapping?

Benefits:

• It prevents high debts and limits your interest costs.
• It ensures that you retain control over your company and shares because you do not need external financing.
• It can stimulate your business skills, because you enter into strategic relationships and because you gain experience with new sides of entrepreneurship. For example, by exchanging products or working together.
• Bootstrapping can increase your creditworthiness, because you develop your business debt-free. This comes in handy if you still want to borrow money at a later time.

Disadvantages

• Long-term bootstrapping ensures that your company cannot make large investments. This can prevent you from reacting to opportunities that arise, or you cannot react quickly enough.
• Prolonged bootstrapping makes it more difficult to be resilient if difficult times or unforeseen circumstances arise. That is because you can only use most bootstrapping tools a few times or for a certain amount of time. In addition, you often have no or only a small financial buffer.
• Sometimes you have to be able to speed up your business. For example, to seize an opportunity or to remedy a threat. You can achieve that with investments or an increase in business costs. For example, to hire personnel. This is not always feasible with bootstrapping. A loan then offers more options

Make money for your business

With the following actions you can make money for your company or save costs.

You and your environment

Start at home. Perhaps you have unused, valuable items at home that you can sell. And you as a person are also worth something. Think about how you can use your professional knowledge for some extra financial room, for example for paid lectures, training courses, or advice.

Also, think about the location of your business. You do not have to rent a business premises right away. You could start from home. Also, there are multi-company buildings where your share business spaces with others. Maybe you have some spare space at home or in your business premises that you can rent out. You can use this extra income for your business.

Also, use your own relationships. For example, you can hire family or friends cheaply. They may want to make things or (part of) their income available. If you are an heir, you can discuss with the testator if a ‘gift during life’ (schenking bij leven) is possible.

Staff and collaboration

Do you temporarily need more staff? Then see if you can use interns, trainees or volunteers. Or use flex workers or temporary staff, for example. Then you only incur extra costs when there is more work and you have more turnover. Some companies even share staff with each other.

Collaborating with other companies also benefits you. For example, you can borrow company resources from each other and refer your customers to each other. Or share your equipment and exchange services with each other. Manufacturers and wholesalers often offer discounts for larger orders. Maybe you can combine your purchases with those of other entrepreneurs. Also, see if other entrepreneurs find bartering an interesting option. You do not pay each other with money, but with goods or services.

Know your finances

Keeping a grip on your finances also helps with bootstrapping. Active debtor management can save you a lot of money. Keep an eye on non-payers, and offer a discount to fast payers. Negotiate payments: let your customers pay in advance or make deposits. Make payments at the end of payment terms, so that you can use your money for other things first. In addition, keep minimum inventory, as too much stock can lead to additional costs.

Finally, you do not always have to buy assets and materials. Renting or leasing cars, machines or other goods can be cheaper. Can you not arrange this? Then take a look at second-hand items, you might come across a bargain. Do you need certain software? Then first look for freely available software. Do make certain it is reliable.

External financing

Are the options for bootstrapping limited for you or are the disadvantages of bootstrapping too big? Then look at external financing. You select a form of financing via the financing flowchart so that you can find a financier that suits you. Review the criteria of financiers before submitting an application.

Seek expert help

Seeking help will increase your chances of getting external funding. With the right adviser and good financial insights, you will find the right answer to your funding needs. Do you have any questions? Call the KVK Finance Desk for general advice on financing.