Expert Answers to Biz Questions
Listen in! Pick up some expert advice to a reader's question that we selected from CyberSchmooz.
Is It Ever a Good Idea to Fund a Business with Your Own Money?
When you make the decision to launch your own business venture, one of the first decisions you will have to make is how you will finance the endeavor. In this regard, there are a number of different options available to you. Despite the fact that there are a number of different sources that your money might come from, it will ultimately either come from an external source, or from your own personal accounts.
But is it a good idea to invest your own personal money in a business? Clearly, when you decide to start your own business you are somewhat blurring the lines. If you own and operate a business, it will be very difficult, especially in the beginning, to entirely separate your personal and professional finances.
The question of whether any entrepreneur should ever use their own personal money to fund a business venture is one that has been raging for a long time. Let’s take a look at the arguments and perspectives involved.
For most people, their savings will be their primary potential source of funds. In many ways, investing your savings can be an easy and relatively cheap way of investing some extra funds into your business venture. If you have the spare cash sitting in a bank account, then why not invest it? If you are going to invest your own money, savings are the best. That is because savings, by definition, represent excess money that you are not dependent upon for your day to day survival.
The Advantages of Self-Financing
Compared to most other forms of financing, self-financing tends to offer the most favorable value, even when compared against methods such as bank loans. Because there is no interest to pay on money that you invest yourself, and an absence of restrictive repayment terms, self financing is widely regarded as being a less risky, and less expensive, than most other forms of funding.
When investors or banks invest in a business, their primary concern is ensuring that they recoup their investment, and then some. This means that you and your business will never be their priority, their main focus will always be on themselves. If you want to maintain total control and ensure that your financial decisions are made in your own interests, investing yourself is the way to go.
The Disadvantages of Self-Financing
The biggest disadvantage to self-financing is the risk involved. Because it is your own money that you are putting on the line, should things go wrong it will be you who ultimately pays the price. Not only this, but there is also a significant amount of emotion involved in investing your own money. When your money is on the line, it can prevent you from remaining objective.
If you decide not to pursue the self-financing route, you will need to obtain your funding from elsewhere. There is a plethora of options for this, check out a provider like Lending Express small business loans options for an example of what such borrowing might look like.
The decision of whether to finance your business using your own personal money is one that you will have to make yourself. If you are at all unsure, it may be wise to look to external funding sources.
Copyright 1995-2021, Idea Cafe Inc. Downloads are for personal use only, not for resale to others, and may not be reprinted in any form without written permission from Idea Cafe Inc.
DISCLAIMER: We hope whatever you find on this site is helpful, but be cautioned that it may not apply to your own situation, or be totally current at any given time. Idea Cafe Inc. and all of its current and past experts, sponsors, advertisers, agents, contractors and advisors disclaim all warranties with regard to anything found anywhere on this family of websites, quoted from, or sent from Idea Cafe. and its related sites, publications and companies. We also take no responsibility for comments published by others on these pages. TRADEMARKS: The following are Registered Trademarks or Servicemarks of DevStart, Inc.: Idea Cafe®, Online Coffee Break®, The Small Business Gathering Place®, Take out Info®, Biz Bar & Grill®, Complaint-O-Meter®, A Fun Approach to Serious Business, CyberSchmooz, and BizCafe.