How Not to Go into Debt When Starting a New Business

10 Nov, 2016 / Comments: Comments Off on How Not to Go into Debt When Starting a New Business / By

Many budding entrepreneurs end up owing a lot of money on mortgages, credit cards, student loans, and cars, which can put a major damper on the possibility of business ownership. Risking everything by quitting your job to start your own business when you’re in debt by thousands of dollars is not advised. However, you don’t necessarily need to go into debt in order to become an entrepreneur. Let’s take a look at some ways you can start a business without going into debt.


Look at All of Your Financial Options

As a business owner, you have a lot of options to consider, and not of all of which will put you into debt. For example, you may want to look at crowdfunding or angel investing as a viable option. It’s important to understand that each option comes with its own pros and cons and so you must ensure you’re extremely educated on the decision you make before moving forward. Also, if you want to avoid debt then it is best to avoid personal credit cards in order to fund your business, as these cards won’t help to build your business credit, but instead will harm your personal credit.


Reduce Your Personal Spending

Becoming a successful entrepreneur often means making personal sacrifices for the sake of your business. However, in order to avoid going into debt while still taking in the costs of starting a business, it is recommended that you cut back on your personal spending. Starting a business means that you have a lot of additional expenses that you have to account for, which can make it hard to not go into debt. However, by keeping your other costs down, you can save yourself from doing so.


Search for a Cash-Ready Partner

If you don’t have the funds to fully bankroll your company, but you also don’t want to go into debt, then you may still be able to find someone who is willing to go into business with you and who does have the funds to do so. Finding a partner who has cash flow that they’re ready to spend on your company will aid you in accomplishing your business goals without going into debt. You may also want to look into a 50-50 business partner, however be aware that this will cause you to lose full control of your business, which isn’t suitable for everyone.


Have a Sound Financial Plan

No matter the means that you’re planning on funding your company, it’s imperative that you have a solid financial plan for it. This plan should be extremely detailed, but also flexible so that you can adjust it according to unforeseen circumstances. Additionally, the worst thing you can do is to borrow money when you don’t have a specific need for the funds. If you are going to take out a loan, it’s important that you know how that money will help you make a profit so that you don’t go into long term debt.


Easy Does It

You don’t need to start your own company with blazing saddles. If you can’t afford to go full steam ahead without going into debt, then don’t be afraid to start slow. Get your business started with the smaller more inexpensive tasks first that will help to establish your company. For example, start by creating a logo and your social media accounts. These are low costs, but will help to get the ball rolling on starting your business. You can even begin marketing your business through low-budget strategies like a social media marketing campaign.


William Mahnic
William Mahnic is a Finance Professor at Case Western University and has spent more than 20 years in the finance industry before becoming a professor. Mahnic has appeared as a commentator on both TV and radio talk shows including NPR, Crain's Cleveland Business, WKYC 3 and The Washington Post. He has been interviewed in BusinessWeek, Wall Street Journal and The Los Angeles Times.

Comments are closed.