Every entrepreneur starts out with success as the only option in business, but sometimes we get clouded and will put an incredible amount of our own personal assets if not all our assets into the business to make it grow. Sometimes we’ll even agree to use personal guarantees to obtain goods and services for the company when it’s simply not necessary to do.
This can be a huge mistake, as we don’t think about the consequences of failing and that’s why it’s wise to build our businesses on a shoestring budget instead of sinking large amounts of money into something that we’ve not proven to be a profitable business.
Even when the business appears to be stable and running perfectly, a perfect storm is capable of hitting us when we least expect it and can destroy what we have. This has happened to me twice in my business career with the survival rate at 50%.
A shoestring budget keeps you from overspending and causes you to focus on funding your growth in business from profits as opposed to borrowed money.
For me, I personally guaranteed a half million dollars of debt, the thought was I didn’t have anything at the time and I wouldn’t be any worse off if it didn’t work. Guess what, it didn’t work and I was saddled with a half million dollars of debt from a business that no longer existed. Had I followed my rule, I would have been able to walk away losing my invested money, but not having to deal with the added stress of the debt the extra debt.
The bottom line is you should focus on operating your new business on a shoestring budget even when you have the cash available. Keep it for reserves but don’t spend any money that won’t produce a return on investment. Stay away from personal guarantees at all cost. Even if something costs you more to keep from the personal guarantee.
Remember, your focus is on building a profitable business. There is no need to scale until you prove that the business can make money.