This is a guest post from Bri M. Bri is a recent college graduate and aspiring web entrepreneur. He writes about online innovation at Trailblogging. Here he presents eight ways beginning entrepreneurs like himself can save money while working on their endeavors.
1. Moonlight as an Entrepreneur. This is the one that many people think of the most often. Do your day job and then put in as many hours in at night and on the weekend as possible until your venture is netting you enough money to do it full-time.
The pro is that you can still count on your steady paycheck while being in control of your venture, the cons are the risk of overworking yourself into losing motivation, not being as productive because you have to switch from one mode of thinking to another, or not having any time to live life.
2. Find a Part-Time Job. This is the spin-off from moonlighting as an entrepreneur. Instead of moonlighting as an entrepreneur, moonlight in another career. Whether that is being a waiter/waitress or working in a retail store part-time, it just would have to be something that is less than 40 hours a week.
The advantage of this route is the extra time you get for your venture (which you still control), while still having some extra cash coming in. The disadvantages are that you are still not devoting all of your time to your passion and you lose the benefits that are often associated with a full-time job (health, etc.).
3. Save Up and Stretch Your Dollar. Instead of trying to kill yourself by working two jobs, you can stay at your current job and pinch pennies or work overtime for a while as you save up some extra money. Most financial advisers will tell you to have three to six months’ worth of expenses saved in a way that it can be immediately accessible in case of an unexpected job loss or other emergency. In this case, you are going to need much more than that. Not only do you have to cover your regular living expenses, but you need to have cash on hand for business expenses (which can be a lot or a little depending on what your venture is) as well.
After considering start-up capital and business expenses, you should try to shoot to save up two years’ worth of expenses, with at the least one year’s (most successful businesses take at least two years to become profitable). During this time, especially at the beginning in order to get into the habit, you should be stretching your dollar to the maximum possible.
The good thing about this approach is that you have complete control over where your business is heading and you can devote the maximum amount of time possible to it. The bad thing is the risk of having the bottom fall out and running out of funds. In which case, don’t despair, you can still jump into the other avenues at this point as well.
4. Get a Personal Loan. Many banks offer personal loans for new businesses to get started. You get your money that you need to start and work on your business and you pay the bank back later with interest. Very simple.
The good thing is that like #3, you can devote as much time as possible to your business. The bad thing is that you owe the bank money (and nobody likes debt), so not only so you have to pay the bank back, but you are also exposing yourself to a lot of risk to your personal assets. This can be very bad.
5. Get a Business Loan. Similar to #4, get a business loan. The big problem with this one is it can be very very hard, or nearly impossible for a new business to get a business loan from a bank. Existing businesses often have to problem, but getting approved for a business loan with no personal exposure is something that many banks shy away from. The good thing is that unlike a personal loan, you don’t have to worry about the bank coming after you.
6. Get an Angel Investor. “Angel Investors” are typically wealthy individuals who believe in your idea or goal and are willing to give you some money to achieve it. What’s great here is that you are not exposing yourself personally as you are with the personal loan, and often these investors often do not set up the same requirements as banks do for schedules payments. Instead they often receive partial ownership of your venture, and that’s the bad part. Some investors may be relatively hands-off, others will view will want to become involved because their money is invested.
7. Get Venture Capital. Oh, venture capital, the doubled-edged sword. With venture capitalists, the biggest concern to keep in mind is that they are looking to make a profit with their clients’ money. Maybe your idea can help many people, but the venture capitalists are looking to turn a profit from your noble idea. Not to say that they don’t agree with it, but it’s the business they are in.
The upside is that you can work on your idea and you have the funds to start, as well as many venture capitalists can bring some useful experience to your disposal. However, there is a price and that’s a large part of your venture, including the decisions that will be made.
8. Borrow from Friends or Family. If you can swallow your pride and ask for money, which many people cannot bring themselves to do, this can be the best and worst thing that you can do. Why is it the best? These people (typically) have your best interests at heart and genuinely want to help you, and it you make it, then people close to you are coming away with some green, too.
Why is it the worst? Money is a touchy subject and no matter how well you think you know someone, money can turn that relationship sour if things don’t go well. Also, you can get some very opinionated people talking about things that they know little about.
Personally, I have been directly involved with #1, #3 and #8 for my ventures. I would recommend #3 above all because then you are your own boss without any outside interests controlling you, yet you get to devote as much time as possible. I should tell you though that I am a fan of pancakes for every meal and multiple blankets in the winter. In all seriousness, #3 allows you to work as hard as you can on your idea while, at the same time, giving you complete control over the direction it takes, though it is definitely the hardest route, it is the most rewarding.
Read more from Bri at Trailblogging.
Updated January 24, 2008 and originally published April 7, 2007.