How to Bootstrap Your Startup

For many new business owners, traditional business financing, like bank loans, are out of reach. Instead, some startup entrepreneurs bootstrap, using their own resources to build a business.

Bootstrapping is a way of providing your own financing for your business. If you’re thinking about self-financing a new business, we’ll lay out what you need to know to bootstrap your startup.

What is bootstrapping?

Bootstrapping means relying on your own finances to start a business without the help of loans or outside investors. It’s commonly associated with startups that cobble together their own financing when first starting out.

Many startups aren’t eligible for business loans, as they lack a financial history. Entrepreneurs typically do not want to give away ownership to investors, so bootstrapping becomes the primary financing option. When bootstrapping, you can rely on your own savings, money from friends and family and maybe even business crowdfunding to bootstrap your business.

When bootstrapping a startup, you need to earn enough income to support your lifestyle or family. To maintain financial stability while bootstrapping, you could work a full-time job and develop your own business in your free time. You could put money away until you’re ready to fully commit to your venture.

Is bootstrapping right for you?

Financing your business yourself can help you avoid the complications of working with investors or getting a startup business loan. Bootstrapping might be a viable option if you have substantial personal savings and minimal existing debt. However, you need to understand the risks involved. Using your personal funds means you could lose your savings if the business fails or doesn’t generate the expected returns.

Bootstrapping can also be a strategic move if you plan to attract investors later. By self-financing the startup phase, you can develop your business to a point where it’s more appealing to investors. Startups often struggle to attract investors due to a lack of immediate returns. A stable, established business is more attractive to investors and more likely to be able to negotiate favorable rates and terms on business loans.

Pros and cons of self-financing a business

For many startups, bootstrapping may be the only financing option to get the business off the ground. Here are some positive and negative aspects of self-financing.

7 steps to bootstrap your startup

Successfully bootstrapping your business involves careful planning and strategic steps. Here’s a guide to get you started.

1. Figure out your budget

First, determine how much you can safely spend from your savings without jeopardizing your financial stability. If your savings won’t cut it, look within your personal network for funding.

Friends and family members may be willing to put money into your business. If you accept help from friends and family, make sure they know whether this is a donation, a loan, or an investment into your business. If things don’t work out, you could end up harming those relationships.

2. Create a business plan

Your business plan should detail your goals, target market, marketing strategies and financial projections. Given limited funds, consider starting small and scaling up gradually. For example, your ultimate goal might be to open a restaurant. However, beginning with a food truck or a stall at the local farmers market allows you to test your concept, build a customer base and generate revenue before committing to a larger investment.

Your business plan should be flexible, allowing for adjustments based on actual performance and market feedback.

3. Create your minimum viable product

A minimum viable product (MVP) is a simplified version of your product or service that meets your customers’ basic needs. Creating an MVP allows you to enter the market quickly and gather valuable feedback without an extensive initial investment.

When creating your MVP, focus on the core features that solve the main problem for your target audience.

For example, if you want to start an online fitness coaching business, your MVP might be a YouTube channel with several workout videos. Once you attract viewers and subscribers, you can encourage them to sign up for an eight-week challenge that eventually leads to personal coaching.

Gathering feedback from early followers and participants can help you make informed decisions on improvements and expansions.

4. Project your cash flow and costs

Now that you know how much startup capital you have to work with and what your MVP is, it’s time to project your monthly cash flow to see how much money you expect to spend compared with how much income you expect to generate.

Start by listing all expected expenses, including one-time startup costs and ongoing operational expenses. Next, estimate your revenue based on market research and sales projections. You may need to go back and re-tool your business plan and MVP to ensure your costs fit within your current budget.

Create a detailed cash flow forecast that outlines when you expect money to come in and go out. This will help you identify potential shortfalls and to plan accordingly.

Update your projections regularly to reflect actual performance and adjust your spending as needed. Keeping a close eye on cash flow ensures you have enough funds to cover expenses and helps you make informed decisions about scaling, marketing and other business activities.

5. Start marketing early

Early marketing helps build awareness and generate interest in your startup. Use free resources like social media platforms to reach a broader audience without a lot of costs. Create engaging content to highlight your product’s value and encourage sharing.

Networking is also essential. Tell everyone you know about your business and leverage their networks for referrals. Consider starting a blog or participating in online communities related to your industry to establish yourself as an expert and attract potential customers.

6. Open up your business (and re-evaluate)

Once you’re ready, launch your business and be prepared to adapt. Regularly review your budget and business plan to ensure you’re on track. If things aren’t going as expected, don’t hesitate to make necessary adjustments. But resist the temptation to expand your budget too quickly — even if you experience early success. Remember, financial discipline is still essential, and you don’t want to overextend yourself. Continue to evaluate profits and manage cash flow, as these are the keys to sustainable growth.

7. Scale up

As your business gains traction, consider scaling up cautiously. Reassess your business and personal finances to ensure you can support the expansion without risking your financial security.

Gradual scaling allows you to test new markets and products without significant upfront costs. Scaling should be a deliberate process that balances growth opportunities with financial stability.

When to take on debt

Bootstrapping is a great way to start a business, but there may come a time when you need to take on debt to grow and expand. Here are a few situations when taking on debt might make sense.

• Expansion needs. If your business is growing and you need to buy new equipment or upgrade existing infrastructure to meet existing demand, a small business loan or line of credit can provide the necessary capital.
• Leasing space. When you outgrow your home office or initial location, leasing a larger space can help accommodate growth. Debt financing can cover the costs of moving and setting up a new location.
• Inventory management. Purchasing inventory in bulk can reduce costs or help you prepare for peak seasons. A business loan allows you to manage this large cash outlay without straining your cash flow.
• Hiring staff. Expanding your team to improve operations or generate additional revenue may require additional funds. Debt can help you cover the cost of hiring and training.
• Research and development. If innovation is an essential part of your business, funding for research and development can help you stay competitive. Debt can provide the funds you need for these initiatives.