Bootstrapping

The one method of financing a startup that has the highest risk, and therefore highest potential return for the entrepreneur is the bootstrap.  The concept of bootstrapping is simple enough, just take your own resources, put them into the business, then re-invest any profit that is generated, rinse, and repeat.  The devil is, of course, in the details.

What if you don’t have cash to invest up front?  What if the company doesn’t throw off profit for a long time?  How do you determine into which part of the business to re-invest profits?  These, and many other challenges, are why going it alone and bootstrapping is the riskiest and most profitable way to proceed.  We will help you here as best we can, but recognize that if you choose this path you’re in for an uphill battle.  On the bright side, if you can sustain the bootstrap for some time, you can always try other paths to capital down the road and you will be in a better bargaining position for having done so.

Let’s start with the first hurdle: cash.  Nothing beats having cash on hand for starting up… but how many of us really have that luxury?  Not many… so we must look to our other option, the entrepreneur’s best friend, the credit card.  When choosing to go the credit card route, it’s best if you can get one in the company’s name.  For companies that have no financial history, this may not be possible, although it can occasionally be done if the entrepreneur co-signs for it.  Also, by the point, you should have gotten yourself an EIN for the company, which will help separate your finances from those of the company.  An important thing to consider here is that if you’re going to run all your spending through a credit card, you will likely be well advised to get a card that rewards spending.  $100,000 spent in one year on a card that offers 2% back is a free $2000 bump in profit.  Similarly, travel rewards can be quite a nice bonus for you at the end of a long, bootstrapped year.