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The case against funding your own business

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Since childhood, we’re taught the value of self-reliance. And in most contexts, it’s still worth striving for. But if you’re considering a new business venture and need capital to fund it, self-reliance—i.e., funding it yourself—may not be your best strategy.

Whether you seek to build on an already successful business or start a new one, the benefits of funding the venture with your own capital are obvious: no loan to repay; fewer partners and investors; full, unencumbered ownership of the operation (and the profits); and the unquantifiable pride of independence.

Yet all that independence comes with costs. Consider these risks before you sink your own capital into a small business:

  • Opportunity cost: If your funding source is currently in liquid form, i.e., money that is easy to access, such as in savings or checking accounts, or mutual funds, it’s serving a purpose. It’s appreciating in advance of retirement. Or perhaps it’s generating income or you’re saving toward a major purchase. Or it’s a hedge against economic uncertainty. By re-allocating that capital, you move other priorities to the back burner.
  • Cost of access: You may have to pay dearly to convert an illiquid asset (property, for example, or a stake in another business) into cash for your new venture. To the extent your assets are less that liquid, you’ll pay to sell them—and you may not get the return on investment (ROI) you expected.
  • Loss of income: Unless you’re employed full-time with full benefits, and plan to stay that way for the foreseeable future, your income from your new business will shrink considerably while your expenses will rise. If you finance a business or expansion yourself, expect to tighten your belt. Almost inevitably, you’ll have to deal with expenses that exceed your projections—like marketing and inventory. And instead of paying yourself first, you will likely find yourself making do with what’s left after your expenses are paid.
  • Loss of wiggle room: While it’s great to have financial skin in the game, the flipside is that your business must compete with your personal expenses. That leaves you with a constant need to economize, which can cloud your decision-making. It adds anxiety to your life and keeps your business from growing as quickly as it otherwise could.

Pango Financial has solutions that leave your nest egg intact. Our DreamSpark® plan lets you leverage retirement savings while it preserves tax incentives. We can also help you secure SBA-backed and other types of funding. To learn more about buying or expanding a business without depleting your own savings, contact us at Pango Financial or call 1-855-WHY-PANGO (1-855-949-7264).