One of the ways in which you can acquire the necessary capital to start a small business is through personal savings. So this is where you save money for some time, with the intention of eventually using that money to start a small business. For some people, this is actually the only viable way to get capital for a business. This is because of the fact that there are individuals who — for various reasons — don’t qualify for business loans from banks. We all know for sure that banks tend to greatly prefer lending their money to well established businesses. Convincing a bank to give you the seed capital with which to set up a new small business can be a daunting task. If a bank is to lend you money for such a purpose, it has to be against very valuable collateral, which most people don’t have. So you simply find that there are individuals for whom business loans are not available. And they don’t have wealthy friends or relatives who can lend them or gift them money to start businesses. Neither are they in a position to find people who can give them capital in exchange for equity in the business… So they are left with no choice but to use personal savings as capital for their small businesses.
If you are in position (where you have no choice but to use personal savings to start a business), you need to take heart. You are not alone. As a matter of fact, many businesses were initially started using their owners’ personal savings. Then as the businesses grew, other sources of capital to expand became available – but with the initial funds having come from the owners’ savings.
In this article, we shall be examining the steps you need to follow, if you opt for this path of using personal savings to start a small business.
Find out how much money you need to save
This is a question of finding out how much money you need to have, to set up the type of business you have in mind. You can undertake online research, to find out how much money it costs to start that type of business. Or you can speak with other people who are running similar businesses to the one you have in mind, to find out how much money they used to launch them. Yet another option that is available to you is that of compiling a list of the different things you need to have in order to launch the business. Then [after compiling the list] visit the various places where those things are sold, in order to find out how much they cost… Whatever you do, it is very important for you (right from the outset) to have a clear and realistic picture of the amount of money you need to save.
Establish the source of the money to be saved
Once you have figured out how much money you need to save to actualize your small business idea, the next step will be for you to figure out how you will earn it. It could be a scenario where you have to find a job (however rudimentary), from whose earnings you would be saving the money to be used as capital for your small business. Or it could be a scenario where you opt to work with the income you already have (by, say, reducing expenses) in order to be in a position to save the funds you need for the new business.Or it could be any other sort of arrangement… The most important thing is for you to move beyond the first step of just finding out how much money you need to save, to the next step of actually trying to get the money.
Create a plan through which you would be saving the money
In this regard, you can start by figuring out how much time you would need to save enough money for the business you have in mind. If, for instance, you get a weekly income, you need to figure out how much you would be saving each week, and for how long you would need to do so in order to raise enough capital for your business. If you get a monthly income, you need to similarly figure out how much you would be saving each month, and for how long, in order to get the capital you need for the business… Admittedly, it may initially look like an impossible task – like if it emerges that you need to save money consistently for a whole year in order to get adequate capital for the business you have in mind. But then again, you need to remember how fast time flies in order to be properly motivated.
Desist from diverting the saved money to other uses
Once the savings start to grow, you are likely to encounter temptations for you to divert the money to other uses. This is where self-discipline is likely to come in handy. You need to understand that you will never save enough capital to start a business if you keep on diverting the saved funds to other uses. You can motivate yourself by focusing on the benefits (including a higher personal income and esteem in the society) you stand to get once you set up the new business. So whenever temptations to divert the saved funds to other things arise in your mind, you remind yourself of the benefits you stand to get once the business is up and running. Another framework you can use in this regard is one where you ‘promise’ yourself to cater for those other needs using the revenue you will be getting from your business. So you first save the money, then use it to start a small business – and once the business starts bringing in an income, you use it to cater for your various other needs.
As soon as you have enough funds, hit the road running
After saving money for so long, once you have enough of it, you are likely to start facing various doubts about the business idea you had at the outset! This is where many people fail – especially because of the fear of losing the funds they have worked so hard to save. You need to confront such fears/doubts with courage. As long as you are sure that the business idea is reasonably viable, once you have saved enough money to set it up, you need to hit the road running – and start the business straightaway. Otherwise if you keep on dillydallying, you may just end up diverting the money you worked so hard to save to other uses.