Why Financing Your Own Business is a Bad Idea That You Should Avoid

Self-financing a business means generating the capital for the business and shouldering the expenses of operating and maintaining it with the entrepreneur's own money. Self-financed establishments can be thought of as financially independent. They are created without the help of loans and the strings attached with those loans. The business is free of debt.

Being without debt sounds well and all, but one person can only put out so much money. The absence of loans means the absence of additional financial backing. This results in increased difficulty in launching the business and achieving financial stability. And this in turn increases the strain on the business owner. Basically, what you get is a smaller playing field and a bigger challenge.

Fewer Options Adds to Difficulties

A small capital limits your business options. The types of businesses available to you will mostly be small and limited. Not only is the type of business restricted, what can be done with each type also is. The owner needs to choose between sacrificing variety or quantity, or both. These limitations can have negative effects that will cause difficulty for the business. And if for some reason you changed your mind, even your alternatives are scarce, if there are any at all.

If the business aimed to offer variety (hoping to attract a larger market by giving more choices to the customer), the supply of each goods will be limited. This is a direct consequence of having more kinds of product to stock.

On the other hand, a business strategy of having a large quantity of a particular product targets a specific type of customer. This typically means a specialized store or service. This business would rely mostly on repeat customers.

Two Heads are Better than One

If your business is self-financed, you’re probably managing the business yourself without any help from anyone. And you may be thinking it is better this way to minimize mistakes. You can’t afford too many mistakes because they can prove costly. So you will be on your own, ignoring help, trying to keep your business alive all by yourself. Going solo in the world of business is almost always a bad thing.

Having one person behind a business limits ideas and therefore stifles its potential to grow. Ingenuity is a key ingredient in any successful business. And ingenuity and creativity is always more abundant in groups of people. Ideas are good, they feed the enterprise. Plans are good, they shape the business. Partners are great, they cultivate ideas and help make the plans get better.

Juggling is a Tough Act

One of the biggest hurdles for self-financed, self-run businesses is juggling between home and work. Both need constant attention, both are equally important, and each needs the other. Time, energy and money need to be allocated efficiently and effectively. This is never easy.

Balancing personal life and business matters is a challenge. This is a good formula to get stressed at home and at work. And stress is the enemy of entrepreneurs! You need a calm, clear mind to effectively think. Sadly, no matter how hard you try, there will always be times when you aren’t there. Be it for your business or your family, times will come when you will miss something which may or may not matter.

But all these should help you realize the truth behind this important business advice. Do not self-finance your business if possible and never run a business all by yourself.

*Photo Credit: 401(K) 2012 (Creative Commons)