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Starting A Business Without A Business Loan – 3 Ways

You don’t really need outside money – things like business loans or venture capital – to start and grow a business.

In fact, there are over half a million (500,000) new businesses started each year in this country (each and every year) and I can guarantee you that very few of them get or qualify for a business loan or some other form of outside capital.

Given the poor capital markets that small businesses face these days with banks not lending to small business let alone to startups, over 90% of all new businesses have to get their companies up and running without any type of outside financial help at all.

So, how do they do it?

They find a way. Which is the defining characteristic of an entrepreneur – to find a way to make it happen.

All businesses are limited in the amount of resources they have to run and grow their companies. Thus, in order to survive and expand, they have to get the most out of the resources (cash, capital, equipment, property, labor, etc) they do have.

Therefore, those businesses that do succeed in starting up their companies without business loans do so by finding a way to make what they need happen. For example, a business that has no money or staff (limited resources) to kick off a marketing campaign but is still able to drive customers to the business by using free resources like social media, word of mouth marketing and referral programs. Or, the new bakery business that can’t afford a kitchen or kitchen equipment but grew the business by using other restaurant’s stoves and ovens after hours and providing them a percentage of revenue earned in exchange.

While getting a business loan or millions in venture capital will surely make your business life easier, having those resources is not a key element for success. What is is the ability to find a way – any way – to start and grow your business regardless of what you have on hand.

3 Ways To Start Your Business Without A Business Loan

The first thing to understand is that all businesses are unique and thus all have to find their own unique ways to overcome their particular obstacles. To that point, we tried to generalize these 3 simply ways to startup a new business as a means of not providing a concert road map to your individual business success but as a means to demonstrate what can be done and then let you take the ball from there and apply it to your own situation.

Lastly, while the following may be instinctive to some they may also seeming impossible to others, do know that businesses have been using these methods or some variation of them to start their companies since the beginning of time.

1) Don’t Use Any Money.

Most of the time, new business owners will use the capital (money) they have on hand to get tasks done – either by hiring labor to do it (be it employees or professional help) or purchasing a product or service that will complete the task for them. What this means is that their money is being spent to save the business owner some time and effort.

However, if you don’t have any money – then you just have to do those things yourself. And, for those business tasks you are unsure about, you just have to take the time to learn.

Here is a great example. When Bill Gates first started Microsoft, he too had limited resources and spent most of his money hiring geeks (software designers, software engineers, etc). But, that left no money for legal issues or accounting. Thus, when he hired someone, he would also tell them; “you now have to go learn the legal side and handle that for us” on top of all your other duties.

Did it work? Look at the company now.

Other example could be a retail business wanting to set up a brick and mortar store front but not having the money to do so. Thus, the owner takes the business online first and uses many of the free resources out there (like eBay, Amazon, WordPress and even Facebook.) to do it – followed by spending a lot of their own time making it all come together.

Then, when the business gets to a certain point that it can afford rent or a lease and all the other expenses related to running a traditional retail business – it can then decide if that is the direction the business still wants to pursue.

Other ways to get business task done without spending money (especially if you don’t have money) are:

Note: These are just a few of the major expenses that small businesses have to face.

For marketing: There are so many free ways to market a business in this day and age – all mostly related to social media. If your potential customers are out on these free social networking sites – then so should you be.

For labor: Most new businesses don’t need full time labor as they just can’t keep people busy enough all the time. Thus, look for ways to hire interns, college students, or even people that will work for equity in the company. Thus, you can still get done the tasks your business needs without spending a dime.

Or, hire local or national free lance individuals who can get those tasks done at a fraction of the cost of hiring a full-time or even part-time employee. Thus, their minimal cost is directly related to the revenue they help bring into the business.

For operations/management: Accounting, inventory management and sales tend to require very sophisticated software programs to control and manage – or do they? There are many bare bones, open source software programs out there on the market that can handle nearly any management task in your business. And, they are all free. The one draw back is that they usually offer no live support but most have forums where you can get answers to all your questions – quickly and on your time. Thus, these free programs can easily become your front and back office without a single monetary expense to you.

It just takes some time in finding these free programs and learning how to get the most out of them.

2) Work On Your Business Part-Time.

One of the hardest parts about starting a new business is also having to cover personal expenses during the startup phase.

It is estimated that it takes a new business 12 to 18 months before it hits its breakeven point – meaning that it takes more then a year before the business is earning enough in revenue to cover just the business’s ongoing expenses – let alone having enough in profits to pay the business owner.

And, if you can’t access an outside business loan, this also means that the business owner might have to go that 12 months plus without a paycheck.

On top of that, throw in this poor economy and that 12 to 18 months could stretch out to 2 plus years before the business hits that all important breakeven or profitability point.

To combat this, many new entrepreneurs keep their day jobs and work on their businesses part-time – at night and on weekends during this startup phase.

This means that the business has to be started on a smaller scale and potentially limp along until the business is able to sustain itself.

However, keep in mind that this is only temporary and that end goal is to eventually transition full-time into the business when it is feasible to do so.

One example of this (and there are many) is the moving company PODS. The founder of PODS keep his day job and worked just a few hours each night on his business plan and business. He did this as he was not in a financial position to quit his job as well as his desire to spend some quality time with his young family while the business began its assent.

However, with some personal income, this business owner was also able to:

  1. Take a lot of the stress of a new business off his shoulders in regards to covering his personal expenses,
  2. Provide some money to put into the business as needed, and
  3. Most importantly, allowed the business to focus on a long-term growth strategy as opposed to a short-term, get revenue now strategy, that would have forced the owner to make bad overall business decisions.

Thus, by having a full-time or even a part-time job in conjunction with the business, will allow new entrepreneurs time and additional resources to research and develop their products and services, market the company and properly grow the business for the long-term (which is the end goal after all).

3) Use Your Own Savings.

Given the poor likelihood that most businesses will get or qualify for a business loan – even for a SBA guaranteed small business loan – means that many business owners have to rely on personal resources to fund their new companies.

This can be good in several ways. First, the business owner already shows the discipline needed to make the right decisions to the benefit of the business as saving money takes a lot of discipline.

Second, by already having the needed funds in place, the entrepreneur can more easily focus on starting and growing the business and not worry about debt payments or resistive loan covenants.

And, lastly, starting a business is about securing the financial future of the business owner – almost the same reason that people save money. Thus, using personal resources is essentially just trading one method of financial security for another. As the business grows, it will be able to offer much more to the future wherewithal of the owner then their savings ever could.

Types of personal resources that can be used include:

-Personal savings accounts,

-Selling off personal assets like stock and bonds or other personal property that has monetary value but no longer has personal or nostalgic value.

-Or, taking retirement funds and investing them in the new business.

Lastly, even if you don’t have savings or personal resources now, you can always continue to work at your present job or any job while you save those funds. Again, it is just temporary until you have the necessary assets on hand to start your business and realize your true dreams.

Conclusion

Having a business loan or some form of outside capital might make it easier to run your new company in the beginning – until you have to pay those funds back – but having a business loan is not really necessary to start a new company or to succeed in business.

There are many ways around having to seek a business loan – a few we outlined here.

Just think about the hundreds of thousands of businesses that get started every year all over the world – since the beginning of time – and how they were able to find ways to get their companies up, running and on a solid path to success – all without business loans.

If they can do it, so can you – you just have to be willing to try and find ways, your own unique ways, to make it all happen.

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Do I Franchise My Business or Remain Status Quo

Many start up entrepreneurs reach a stage when people ask if they can franchise their business to others. In fact a great number who approached me have only been in business for an average of 3 months. They were eager, as there have been a number of queries from customers. Meantime, there are also some who start a business, and nurture the dream of attracting the giant conglomerates-as what happened to many acquisitions of local brands started by young entrepreneurs. From my side, I am fortunate to have assisted five (5) clients who were approached and eventually bought by big companies either on 100% or 70% basis.

Still, there are those start ups that simply want to pursue their passion in cooking, or in baking without thinking of expansion. And of course, everyone is enamored with the restaurant business as it is “sexy” to have one. A lot of restaurants barely make their rent and operating expenses, but owners usually keep these businesses for the bragging rights.

When do we decide if we should franchise our business?

A good friend of ours started the green trend in cafes and now she sees more people copying her pandesal “meatless” burger, copying her fresh fruit juices and even the colors of her store. Should she be flattered or should she be irritated? She asked me what she should do. In fact she didn’t know what to do as openly there are customers who would take snap shots of the products, the store lay out and the color schemes. There was a day she arrived at the store only to find several people having a meeting and taking some measurements of the place! She introduced herself as the owner and inquired why they were doing such activity right inside her store? One of the ladies in the group explained that they want to bring the concept to the United States!

Upon learning of these incidents, I told her: “you better think of franchising!” “But I only wanted one store, ” she says. Sorry, Madam, if all you want is one store, you cannot help but see competition copying you in no time. You see once a business is opened to the public, no matter what location if the food and concept are good, word will spread and soon copycats will be hounding the place. That only means she is doing well, doing good and looking well, too. If not, who would copy a sad-looking business?

Does she have any choice? Oh sure she has! She can just remain where she is and let those who want to taste her popular recipe come. I have seen a number of places like that in the metropolis. On the other hand, she can look at the benefits of franchising? There are times when the word “franchise” may sound greek to entrepreneurs. Or they may feel “they are not ready yet”. Exactly when can somebody say that the business is ready? Injap Sia of Mang Inasal, Josie See of Peanutworld, Richie Cuna of Fiorgelato, Tess Ngan Tian of Lots A Pizza, Bards Lapid of Chicharrific, Gilbert Jim of Bubbatealicious, Rommel Juan of Binalot, Sarah Salcedo of Baliwag Lechon Manok and Liempo, Julie Gandionco of Julie’s Bakeshop, Lita Urbina of CafĂ© Laguna, Vic Perea of Mr. Softy, Jose Magsaysay of Potato Corner, Cielo Templo of Cielo’s Doughnuts, Bong Magpayo of Sweet Corn, Fred Co of RBX Rice In A Box, Kamela Seen of Plato Wraps, Emmanuel Balce of Sisig Hooray and countless others never manifested to me that they were ready. A great number where even in their incubation or growing stages. Yet they dared to begin the process of looking forward in expanding their business.

Those people I mentored began with a positive outlook in mind. They were prepared the process may be so detailed, sometimes leading to drastic changes, experimentation and paradigm shift. There was always a joke among them that whenever they saw me and especially if my wife Lyndah was with me they would take ibuprofen pill for headache! It is better to face the problems prior any franchising is done. What may be a disaster is for the franchisor to come unprepared and face franchisees with different situational concerns. Of course there will be problems as part of the growth of the brand. Yet the franchisor has been prepared. Like soldiers, they undergo tedious process and horizontal foundation building.

A successful franchise is the result of all the hard work and efforts of a franchisor. There is no magic pill to speak of. There are entrepreneurs who believe that a sure fire to success is just copy and copy without innovating. Sorry but this is where many brands flop!

Here are a couple of tips to set the tone in franchising your business:

1. Documentation of the procedures: Refers to writing step by step on how to prepare the products or services? Consistency and quality control to be taken cared of specially when there is a demand and number of branches begins to grow.

2. Identification of recurring problems in the operations of the business: No matter how small the problem if it keeps happening, this is a sign something has to be done. Taking it for granted may become a major obstacle in the future.

3. Is there a business model to showcase the concept? How profitable and acceptable is it? Franchising speaks of having a successful model. This means from the external features of the store to the products and services, there is a positive acceptance by the targeted consumers. The financial statement too must be showing profit to determine the payback of the investment.

For more details, interested parties may grab a copy of my latest book “Is Franchising For Your?” available in all National Bookstore branches. Those using tablets may go to Amazon.com or iTunes for e-book format. If you like to follow the footsteps of those people I mentioned, well the book is just waiting for you.

Finally here is something for all to ponder.

“A journey of a thousand miles begins with a single step”. Lao-tzu (604 BC – 531 BC), The Way of Lao-tzu