One of the questions we often encounter in entrepreneurship forums is the one as to whether it is really possible to start a business with limited capital. This question is typically posed by individuals who are eager to start businesses, but who then happen to have very little money. You may find someone who was previously working somewhere, then lost his or her job, and is now trying to figure out how to start a business with the little money they had saved… So that is typically how the question as to whether it is really possible to start a business with little money comes up.
It is indeed possible to start a business with limited capital. But you need to understand that if you are starting a business with very limited capital, you shouldn’t expect things to go as smoothly as they would have gone if you had adequate capital.
There are certain practical things that you need to do, if you are seeking to start a business with limited capital (or if you are trying to figure out what sort of business to start with the limited capital you have). Those practical things you need to do/consider, if you are keen on starting a business with very limited capital are what we will be focusing on in this article.
If you have a very small amount of money with which to start a business, you need to (among other things):
Consider renting rather than buying
This is where, for instance, rather than buying the equipment you need for your business upfront, you opt to rent instead (at least in the initial stage of your business). So, for instance, if you opted for a lawn mowing business, instead of buying a lawn mower at the outset, you can opt to first rent one — until your capital grows to a level where you can afford to buy your own mower. This applies even to relatively complex businesses: like where a person who is setting up a café can opt to initially rent the cooking and serving equipment from someone who happens to have such equipment that is lying idle.
Business start up costs tend to look impossibly huge if you are only focused on buying the equipment and materials you need. But if you consider renting the equipment you need (at least in the initial stage), the startup cost tends to come down to a manageable level.
Consider businesses that entail selling other people’s inventory
Business startup costs tend to appear impossibly huge if you are focused on starting with your own inventory. But there is another possibility: where you can sell other people’s inventory and earn a cut of the profit made in the transactions. If you opt to take this route, you would find that the only costs you would need to incur upfront are on things like renting the premises you would be operating from and getting the necessary licenses. And even these can be avoided/lowered by, for instance, opting to operate online in the initial stage.
Consider initially using a less-than-prime location
If you insist on initially setting up your business in a very prime location, you will be probably required to pay very huge rents and deposits at the outset. That is bound to drive your startup costs above the roof. Yet a very prime location doesn’t always translate into very good business. If you have limited capital, you can opt to start your business at a less-than-prime location, whose rental costs are very low, and for which you don’t have to pay huge deposits. Should your business work out, you can always move to a prime location, or establish another branch at a prime location.
Market using your personal and social networks
The idea here is to ensure that you don’t have to spend too much money on marketing in the initial phase. If you have a huge personal network and a huge social network following, there is no reason as to why you can’t leverage it to market your business. It is just a matter of letting the people in your personal or social network know that you have set up a business dealing in XYZ products or ABC services, and inviting them to consider buying. Some of them will surely give the business a try, especially if what you are selling is something they usually need to buy. And if they find your product or service to be reasonably good, they are likely to become repeat customers and to bring others with them. This way, you can eventually grow the business to a sustainable level without spending too much on marketing campaigns.
Negotiate for lines of credit with suppliers
Many suppliers are open to arrangements where they can give you their products without you having to pay them upfront. So they give you their products, you sell them, then pay them after a couple of days or after a week [after you have sold the products]. Using such lines of credit with suppliers, you can start a business without having to spend too much on inventory.
Consider setting up a basic service provision business
Here, we are focused on basic services like lawn mowing, laundry, pest control, gardening, landscaping, house cleaning, car wash… those sorts of things. These are particularly good if you truly have very little money to start out with. When it comes to provision of these basic services, the only thing you need to have is equipment – you know, things like a lawn mower, a washing machine, cleaning equipment… and so on. And these can still be rented rather than being bought upfront. These sorts of enterprises are unlike others where you have to acquire inventories and rent showrooms and acquire expensive licenses… When you take something like lawn mowing, you see that you only need to acquire a lawn mower, then print some posters indicating that you are offering lawn mowing services and indicating a phone number that interested people can reach you at. Surely, that is unlikely to cost you too much money. Similarly, when it comes to something like pest control, you only need to acquire the necessary skills (which you can do through a two week course). Then you acquire the necessary equipment and chemicals, put up posters or social media ads indicating that you are offering pest control services, and start getting phone calls from interested clients. The same with a car wash business – where you just need to get hold of basic car washing equipment and put up a conspicuous sign indicating that you are offering car-wash services. Of course, there are some nuances to most of these businesses. Like whereas it can be fairly easy to get hold of a car washing machine, getting the space within which to legally conduct the business can be tricky. Yet if you have the right level of determination, there are workarounds – like where you can talk with a vehicle repair garage owner to allow you to be operating from outside their premises for a small fee.