The Great Startup Debate: Bootstrapped vs. Funded Ventures

You remember what it was like in college to have just enough cash on you to get a small hot coffee for your 8 a.m. Friday class. Though part of you thought it might be better to pocket the money and save it for another time, especially since you knew there would be loans to repay after graduation, you knew that you needed the caffeine to help yourself concentrate on what was being said in the lecture that early in the morning, and at the end of the week no less!

You’ve been out of school for a while now. You’ve held a steady job, and in your years since becoming a working professional you’ve decided that you’re ready to head your own business.

But running a small business takes green. You suddenly feel like that cash-strapped undergrad again: should you buy the coffee, or should you save it for something else?

This is what small business owners have to consider when deciding how to fund their new enterprise: should they borrow little to no money (known as bootstrapping) or should they take on an investor and make the business a funded venture?

One thing is for sure: when you set up your small business, getting business insurance for startups is an absolute must. Without business insurance, your small business could be sunk before you’ve made anything back, leaving you in a financial pit of despair.

So, back to funding your small business. Should you fund it yourself or bring on a money man?

Benefits of Bootstrapping

Bootstrapping is when a small business owner starts the business with little capital. The small business owner is essentially funding the business using their personal finances or the funds generated from the business itself.

Entrepreneur Magazine writes that “bootstrapping is one of the most effective and inexpensive ways to ensure a business’ positive cash flow. Bootstrapping means less money has to be borrowed and interest costs are reduced.” The less money you borrow, the less you’ll have to pay back. By using the profits your business has generated, you are less likely to go into debt and will remain in full control of the company.

Typically, when small businesses bring investors on board, they must listen to what the investors want to see done with the business and must go through the investors before making changes to the company’s structure or business model. Despite you being the owner of the company, you would have to get permission to make any changes to the business.

Benefits of Funded Ventures

How can you get a business off the ground if you don’t have the money to do it? The average amount of time it takes for a small business to turn a profit depends largely on the business model of the company. The Small Business Chronicle reports that an “entrepreneur can profit from [their] company even while it is making a loss on paper, while investors can profit if they are paid back a fixed interest rate on their investment regardless of how the company is doing.”

Venture funding gives you the financial freedom to pursue business interests. It also brings more people into the business with different ideas and varied backgrounds, giving you everything you need to flesh out the business and to give it a great head start.

The way you fund your business is up to you. You can pull yourself up by your bootstraps, or you can seek the help of experienced investors. Just remember, you’ll need small business insurance to keep your company on the up-and-up! Visit CoverHound today to find your plan.