A strong personal balance sheet – the combination of personally owned assets and personally owed debts – can make possible a bootstrapped business launch. Many if not most businesses start through founder funding.
Personal balance sheet questions to ask
If you are thinking about starting a business, look first at your personal balance sheet.
- Do you have financial assets such as stocks or bonds that can easily be turned into cash?
- Will you be receiving a large injection of assets such as an inheritance or early retirement package?
- Do you have other assets such as real estate that could be turned into cash with some planning?
- Have you paid down enough of your debts so you can avoid personal cash flow problems if your business can’t pay you for a period of time?
- Do you have a net equity position in real estate that could be used to secure new debt financing for the business?
Under certain conditions other components of your personal balance sheet might be tapped to start your business. For example, using some of your 401(k) to buy a franchise sometimes can make sense. But as with all personal investments in your company, think thoroughly about risks. Only 50% of all businesses make it through their fifth birthday, and personal bankruptcy is likely not something you want to experience!
Intangible Personal Assets
There is another component of your personal balance sheet that can be extremely helpful for your business. Most people have some amount of intangible personal assets: friends, business relationships, skills, knowledge, and reputation. Many businesses start out by turning intangible personal assets into cash through consulting, or introductions to customers, or turning personal relationships into paying business relationships.