What is bootstrapping?
- Jelle van der Walle
- 9 Feb 2023
- 3 min
- Managing and growing
Starting your own business or investing in your company costs money. You can borrow this from a bank. If you prefer not to take out a loan, you can apply bootstrapping. This means that you borrow as little money as possible from outside. You optimise the use of your own resources, save costs, or look for free solutions. You also keep as much grip on your finances as possible. Read here how you can get money for your company without borrowing and what the advantages and disadvantages are.
Literally, a bootstrap is a leather loop on a boot that helps you put it on more easily. If you free up money for your company, doing business is also a bit easier. Do you want to apply bootstrapping? Then you can use savings or your salary for your company, but there are more ways. Discover the pros and cons first.
Bootstrapping has 2 sides. It is a strategy of taking maximum advantage of available resources. This is a particularly relevant strategy when you are starting a business. For example, doing business from your own home, using income from employment, and using personal savings for starting your business, and having your family and friends help in your company for free. Bootstrapping is also a means to cut costs. This is especially relevant if you incur high costs or have limited financial room. For example, sharing business space with other entrepreneurs. Or borrow or rent business assets such as machines, cars, and tools instead of buying them. Or if you buy, buy second-hand instead of new.
Benefits and disadvantages of bootstrapping
Why would you choose bootstrapping?
- It prevents high debts for you as a (young) company and limits your interest costs.
- It ensures that you retain control over your company and shares because you do not need external financing.
- It can stimulate your business competences, because you enter into strategic relationships and because you gain experience with new sides of entrepreneurship. For example, by exchanging products or working together.
Bootstrapping can increase your creditworthiness, because you develop your business debt-free. This comes in handy if you still want to borrow money at a later time.
- Long-term bootstrapping ensures that your company cannot make large investments. This can prevent you from reacting to opportunities that arise, or you cannot react in time.
- Prolonged bootstrapping makes it more difficult to be resilient if difficult times or unforeseen circumstances arise. That is because you can only use most bootstrapping tools a few times or for a certain amount of time. In addition, you often have no or only a small buffer.
- Sometimes you have to be able to speed up your business. For example, to seize an opportunity or to remedy a threat. You can achieve that with investments or an increase in business costs. For example, to hire personnel. This is not always feasible with bootstrapping. A loan then offers more options
Make money for your business
With the following actions you can make money for your company or save costs.
You and your environment
Start at home. Perhaps you have unused, valuable items at home that you can sell. And you as a person are of course also worth something. Think about how you can use your professional knowledge for some extra financial room, for example for paid lectures, training courses or advice.
Also, think about the location of your business. You do not have to rent a business premises right away. You could start from home. Also, there are multi-company buildings where your share business spaces with others. Maybe you have some spare space at home or in your business premises that you can rent out. You can use this extra income for your business.
Also, use your own relationships. For example, you can hire family or friends cheaply. They may want to make things or (part of) their income available. If you are an heir, you can discuss with the testator if a ‘gift during life’ (schenking bij leven) is possible. For example, in 2023, parents may make a one-off tax-free donation of €28,947.
Staff and collaboration
Do you temporarily need more staff? Then see if you ca n use interns (in Dutch), trainees or volunteers. Or use flex workers or temporary staff, for example. Then you only incur extra costs when there is more work and you have more turnover. Some companies even share staff with each other.
Collaborating with other companies also benefits you. For example, you can borrow company resources from each other and refer your customers to each other. Or share your equipment and exchange services with each other. Manufacturers and wholesalers often offer discounts for larger orders. Maybe you can combine your purchases with those of other entrepreneurs. Also, see if other entrepreneurs find bartering (in Dutch) an interesting option. You do not pay each other with money, but with goods or services.
Keeping a grip on your finances also helps with bootstrapping. Active debtor management can save you a lot of money. Keep an eye on non-payers, and offer a discount to fast payers. Negotiate payments: let your customers pay in advance or make deposits. Make payments at the end of payment terms, so that you can use your money for other things first. In addition, keep minimum stocks, as too much stock can lead to additional costs.
Finally, you do not always have to buy assets and materials. Renting or leasing cars, machines or other goods can be cheaper. Can you not arrange this? Then take a look at second-hand items, you might come across a bargain. Do you need certain software? Then first look for freely available software. Do make certain it is reliable.
Are the options for bootstrapping limited for you or are the disadvantages of bootstrapping too big? Then look at external financing. You select a form of financing via the financing flowchart so that you can find a financier that suits you. Review the criteria of financiers before submitting an application.