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Freelance Funding - Rules of Thumb | Freelance Sprout | Find, Start, and Grow Your Dream Freelance Business
Read the six part series on creating a freelance business plan
 

Freelance Funding - Rules of Thumb

Date April 29, 2008


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Unless you’re in an entirely new field, most of what you need to start a business sits in your house.

Because startup costs are usually low, most people bootstrap, or self-finance, their ventures using savings, credit cards, or home equity loans. Starting with a bigger budget may not make a startup more successful. In fact, it may do just the opposite.

Being heavily leveraged upfront can cause so much emotional strain the business owner can’t get the work done to make the payments.

Starting a business is similar to raising a child (or an animal if you don’t have kids). It has to grow—through your continual investment—before it can stand on its own. It can be a slow, sometimes never ending process. In short, it’s a lot of work!

Here are a few rules of thumb to help you finance your business without sending your financial life into a tailspin.

1. Be ready to fund your business with money on hand. If you have to, use credit cards. Just don’t make it a habit. When I first started, it was too easy to buy something “for the business”. I was using my business as an excuse to buy stuff I probably didn’t need.

Looking for extra cash in your paycheck without asking for a raise? Redue your taxes. Most people withhold way too much in taxes. If you’re getting several thousands dollars refunded each year, that’s several thousands dollars you could of had throughout the year.

The money you spend on business expenses will reduce your taxable income. Why not spend the money when you need it?

2. Don’t borrow unless you absolutely must. If you get a big project and need new software, whip out the credit card. The job should cover the expense. And if you do borrow, work the payment into your overall budget. It’s easy to “cover our eyes” on credit card debt and just make the minimum payments.

Especially try to avoid borrowing from friends and family if you don’t know how you’re going to pay them back. You certainly don’t want to start off with sour family relationships.

3. Don’t quit your job until you can cover your living expenses, or at least the majority of your expenses. Can’t cover your mortgage or rent? Don’t quit. Remember that some of your expenses will go down if you’re working from home (think vehicle gas).

By “bootstrapping” your business, you’ll only grow as much as you can produce. But, it’s a far safer and more reliable way to get started. By using existing money and self funding with profits, you’ll grow a healthly and very profitable business.

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Related posts:

  1. 4 Simple Rules for Freelance Success
  2. Financing a Business on a Small Budget
  3. Before you Quit your Job - How to Determine your Replacement Income

3 Responses to “Freelance Funding - Rules of Thumb”

  1. Ramona Iftode said:

    Again a good point. I started with little money and to this day I try to keep my expenses low. This means I earn money I can reinvest and my firm works nicely even if with small funds. I struggle to earn more since I don’t have other financial resources. I do think it’s a psychological thing too, it made me work more and I wasn’t relaxed since I knew I don’t have money :)

  2. ceblogger said:

    great tip for start-ups. My wife and i started a small business. Even though we can see its potentials, we seemed to pause after a few good weeks. We really lacked the focus as of the moment.

  3. Jerret said:

    Thanks for commenting. Yes, not having money motivates some people and de-motivates others.

    I think maintaining focus is one of the hardest things to do, especially during the startup phase.

    -Jerret

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