A complete guide to bootstrapping a business

When you’re building a business from the ground up, a ton of decisions cross your desk every day. One of the biggest is figuring out how to cover your costs. In the early stages, you might decide to forgo outside funding and finance everything using your own money or the money brought in by your business. This is known as bootstrapping, taken from the expression “pull yourself up by your bootstraps.” There are many pros and cons to bootstrapping a business. We’ll walk you through what you need to know. Discover more about bootstrapping in business and some advantages and disadvantages of this type of financing to decide whether it’s right for you. 

What you’ll learn:

• In business, bootstrapping means funding your company with your own money—whether that money comes from personal savings or the business’s own income.

• Compared to other financing options, bootstrapping lets you keep full control of your business, limits your debt and helps you focus on making profits efficiently.

• Bootstrapping comes with drawbacks, such as higher financial risk, fewer resources and, at times, slower growth opportunities.

Bootstrapping a business means building a company from scratch using your own money, either from personal finances or income generated by the company. Compared to getting funding from loans, venture capital or crowdfunding, this strategy uses minimal outside capital to get operations up and running. When done correctly, bootstrapping can lead to steady growth and positive cash flow—without giving up ownership of your business.

Some ways to bootstrap your company include:

• Owner financing: You can use your personal savings and income to fund your business.

• Sweat equity: This isn’t as much about money as it is the personal effort you put into growing your company.

• Leveraging personal debt: This typically involves using personal credit cards or personal loans to cover business costs. 

• Using sales income: You can take the profits from your sales and quickly reinvest them back into your company.

• Cutting business costs: When bootstrapping a business, you might focus on ways to keep costs down to limit spending.

• Being strategic with business operations: Keeping your business operations lean as you get started can help keep costs low so profits can continuously be reinvested. 

Many entrepreneurs might choose bootstrapping in the company’s early stages, with the hope of eventually attracting investors to help grow the business. And while it can vary, depending on the company, bootstrapping may occur in different iterations throughout the lifecycle of a company. In the beginning, business owners might use personal income or debt to get things up and running. From there, as sales start coming in, that cash can help support expansion. And once things are more stable, business owners may look for other funding options—either from investors or through loans—to fuel more growth. 

There can be benefits to using bootstrap funding, such as:

One of the main benefits of bootstrapping a business is that it enables you to keep full control of your company. When you bring in external investors, you might have to give up some level of ownership and lose a bit of that control as a condition of funding. Bootstrapping allows you to make all the decisions for your company and oversee the overall direction and business plan.

Because you’re not relying on outside funding options, bootstrapping helps keep your debt low. It can also be a cheaper option because you’re not paying for the added costs of borrowing, such as fees and interest. Plus, the barriers to getting started are lower because you’re not tied to lending or investor requirements.

When you’re funding your company on your own, you might opt for a business model that enables you to focus on core operations while thinking outside the box about how you use your resources. This helps build a solid financial foundation and shows investors or lenders that you’ve got a handle on your operations.

Bootstrapping might not be an ideal option for all businesses. Here are some of the downsides.

When you bootstrap a company, it means you’re putting your own money on the line. If something were to happen, like a dip in sales, you could be personally affected. And because there’s no guaranteed funding like you’d get with a loan or line of credit, the business is at a greater risk if something unexpected pops up, like a surprise expense.

A bootstrapped company typically runs on a lean business model, with limits on spending in certain areas like promoting your business, which could slow down growth. Plus, working with investors comes with perks like networking and mentorship—things you might miss out on when you’re building a company completely on your own.

When you’re relying on funds from your own pocket, you might be limited in the amount you can put toward business expenses. As a result, you could miss out on opportunities or be unable to fully take advantage of a spike in demand for your products or services. Bootstrapping is a balancing act—it can be a challenge to expand enough to keep up with market demand without over-promoting your business and generating more interest than your resources can handle.

There are certain factors to consider when deciding whether to bootstrap your business, such as:

• Can you give up ownership? Bootstrapping allows you to maintain full control over your business. But sometimes, outside financial resources—like certain types of crowdfunding or working with an investor—might be more valuable if you’re willing to give up a bit of ownership and control.

• Would accruing debt early on make or break your success? Depending on your business model and strategy, taking on some debt could be the right move to help fuel growth. And some companies—such as retail, manufacturing or food service—could require a higher up-front investment in order to be successful. In cases like these, bootstrapping might not be the best option. 

• What is your personal financial situation? Bootstrapping typically requires you to use your own resources to fund your business, which can be risky on both business and personal levels.

• What are your long-term plans? You can use bootstrapping as part of your larger strategy. For example, once you’ve laid the groundwork for financial stability, it might be easier to qualify for a business credit card with proven income.

If you’re starting a business and considering bootstrapping, here are a few strategies to keep in mind.

• Set business goals and stick to them.

• Make a budget and factor in any extra expenses that might come up.

• Keep your business operations lean and minimize expenses wherever possible.

• Hire employees who can wear many hats and consider offering flexible working arrangements.

• Focus on attracting customers early and prioritize retention and feedback.

• Reinvest your income back into the business to keep growing sustainably.

• Look for investments and business tools that offer the best value for your money.

• Find networking and mentorship opportunities that don’t require giving up a piece of your company.

• Stay flexible and be ready to adapt to market changes.

Building a company from scratch requires creative thinking, problem-solving skills and resourcefulness. And adding self-funding into the mix creates another layer of complexity. 

Here are some common mistakes to avoid if you’re bootstrapping your company.

• Spending too much, too quickly: Because bootstrapping requires little to no outside capital, sticking to a budget is key to avoiding stretching yourself too thin. While you might be tempted to spend on certain areas of the business, prioritize the essentials and hold off on nonessential costs until you have a solid foundation. 

• Not prioritizing hiring efforts: Even though you might be able to cut costs by compromising on talent, it doesn’t mean you should. When building your team, it’s worth considering the long-term value of hiring the right fit—even if they come at a higher price. 

• Neglecting networking opportunities: While investors can offer mentors and connections, you can still find these opportunities on your own. Look for ways to network with other entrepreneurs and mentors who can provide guidance and open doors for growth. 

• Staying too rigid in your processes: Bootstrapping and adaptability go hand in hand. Stay nimble—don’t be afraid to shift your business model when the market changes or resources get tight. 

• Underestimating the importance of a long-term plan: Bootstrapping can be a great option when your company is just starting out. But it’s unlikely to be the only financial strategy you’ll use. Regularly revisit your long-term goals and make adjustments to better support your long-term growth.

Bootstrap funding enables you to keep full ownership of your company while taking on minimal debt, especially in the early stages. But this type of financing strategy isn’t right for everyone. If you need to leverage some form of credit to reach your goals, you might consider opening a business credit card. Check out credit card options from Capital One and get pre-approved today to find a card that meets your needs.