Strategies for how to fund a business

Strategies for how to fund a business

Lesson Details:
April 27, 2020

Video Transcription: All entrepreneurs want to know how to fund my business do you have any what do you tell your clients because I'm sure you get asked this all the time this video is brought to you by Appy Pie’s Academy their w-2 and you know they're dissatisfied with their job or they just see a bigger vision and so they want to get into business so the first question is always how to wet fund this business and the best answer is as little as possible right so that's the key in business when you start right they don't they hate to hear that everybody thinks there's gonna be some venture capitalist who sends you a blank cheque and you're just gonna fill it in and let me tell you if if they do send it to you you've just sold your soul so you know that's it's not even actually the dream that's really not the dream the dream is that you're gonna own your business you're gonna control it and you're gonna put its funds in your pocket right so the more control you can keep over that business from the very beginning the better so the best place to get the funds straight out of the gate is yourself the other thing that does is it because you use those funds a lot more wisely because those are funds that you earned right yeah that's your skin in the game so now instead of you know maybe doing some stuff that's you know a little more out there when it's when it's your money you're gonna be making smarter decisions so my first answer is always yourself your the best place to go when I say that though and when I work with individual clients the big caveat is that we don't go all in so you want to go all in to your business you can put your heart your soul everything into it but not all your money not yet every last time so you're not pushing all your poker chips to the table here right now you're gonna keep something for yourself you're gonna keep something as a fallback and that's when you're financially savvy that's a big element of it that you're that you're playing a long game.

So you're excited about this business you're gonna you're gonna fund it yourself to the extent that you can and you're gonna keep something in reserve for yourself that's the first place that you go to get funds and you want to be super careful about how you use those funds because there's not some unending stream you know you're not standing extra stream where fish are just gonna keep swimming by and you're gonna keep plucking them out of the water right you're only getting so much money to start this business so go ahead it sounds like yeah you know one thing that I think I advise the same thing to people but at the same time what I'm never certain about is how should a person assess their own risk tolerance mm-hmm how much money they can put in like how do you advise on that that's great I have a whole chapter in my book called an exit plan so I sort of take it from the back from the back door so I say so let's say this business doesn't fly and it's not fun to talk about that in the very beginning but let's just say it doesn't let's say this one doesn't fly and you have to move on to another business what is gonna be left in your pocket when these doors close and I mean I come from a bankruptcy background and I filed a ton of bankruptcies for small business owners and I can tell you what happens a lot is there's nothing left so business owners have have incurred they've racked up all the credit debt they can to fund their business they've put a second on their house they've cleaned out any savings they have they've cleaned out every retirement account they had I mean it's just it's brutal and so they'll come when I was a bankruptcy attorney sit in my office and I tell them okay I can handle all the debt and that's great but I can't create income for you and I can't get back your retirement accounts I can't get back your savings and that second on your house is still gonna be there I mean it's just brutal what people will do so when people are asking me how far should I go we will always want to go around the back and say so if we're gonna close this down what's gonna be left for you because I've had people walk out of my office and say I don't know how I'm feeding my family tonight because I just wrote I call it riding the train into the wall I just rode this thing all the way into the wall yeah and there is this mentality right because you know the business is not doing well but you have this like oh my god what if I do this what if I do that and by the time you know you spent a long time and it's a trap like it's a mental trap and you're like you spend so much and yeah financial resources but also you so much of your time when this business it happens a lot I have people write down their exit plan so in in their exit plan they talk about this is how much I'm going to still have in retirement I've drawn the light about you know either encumbering my house or not encumbering my house this is how much savings because most people have gone into the business and they're spending all their effort in the business.

So they're not employed anymore so if the business goes down they have zero income they have nothing and so we want to make sure that we give them at least a couple months where they can you know go find something to start to feed you know it depends you know if you're a single guy then you know that's a different story but a lot of people have families I mean it becomes very scary very quickly yeah I mean for my taste I almost advise like way give yourself way more of a cushion mm-hmm like there's like play money but like that should be like you're like very percentage of small percentage of your savings but for me at least I'm more of a scare like I'm not like you know that risk tolerance right yeah you don't have a high tolerance for this yeah yeah especially even when I run a business Mike I always want to know like if I even put some money into something like that's definitely gonna make more money come out of that like I don't just dumping money into something even if it's like affordable yeah I just have that kind of mentality ingrain but and I think we see that more with people who are self funding their business you know when that money comes from you're sweating blood all the sudden we're having a different discussion about how we're gonna spend it yeah and I think I do see like many people who have these lofty ideas very much in parallel is I'm gonna raise money from an investor it's not home it's like oh I play money from someone else's yeah not the right strategy yeah cool well you pay for that I mean you take investor money and there are strings big strings there are strings but you know you get up you get to play around with somebody's money and it's way better than losing a ton of your own it is so it probably depends what your business model is - I mean you want a bootstrap whenever possible sometimes it's not possible I mean if you have a super big vision and you need big money to make it happen I mean then you got to go outside absolutely like people could want to start a restaurant it's like you know it's not don't just don't start a restaurant ever ever ever that's what I'm saying my advice never if you want to start a restaurant just go do something else anything else isn't it like the worst absolutely this is a brutal business can I tell you how many bankruptcies I filed for restaurant owners it's brutal.

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