How to Start a Business with No Money
in Business by Mark Andrew
Ever watch the home shopping network and think, ‘Hey! I had that idea.” One of the reasons you didn’t follow through on turning it into reality was most likely a lack of capital.
You’re not alone. Around 63% of Americans give up their entrepreneurial dreams due to funding constraints. But here’s some good news. Zero startup costs aren’t a pipe dream. You can start and run businesses with little to no upfront money.
The fastest way to become a business owner is with a service-based idea. You don’t have to worry about product-related costs like manufacturing, inventory, or storage. Other free business ideas include digital products, messenger/courier services, and drop-shipping.
Since you’re here, you probably have a business idea you want to get off the ground. So, here’s how to start a business with no money.
1. Validate Your Business Idea
Whether your business is service-based or product-based, you should verify that what you envision is viable in the current market. What you think is a good concept could be a hard sell. Therefore, you should pitch your business idea to friends and family to see how others perceive it. You can also get free business advice from organizations like Score, a nonprofit partner of the Small Business Administration.
Another way to test the profitability of your business ideas is with preorders.
Preorders allow you to receive money upfront for products or services you haven’t yet produced. Not only does it provide you with cash to invest in production, but it also lets you know if your business meets a need. Many preorders let you know there’s a demand. Poor pre-orders suggest low demand or that your target market or price needs reevaluation.
2. Write a Business Plan
A business plan turns your abstract idea into a concrete reality. It helps you define SMART business goals and map how you will achieve them. You will need a well-written business plan to attract investments down the line.
No two business plans are the same. The length and content vary from business to business. However, they all have the same essential elements: an executive summary, company description, market analysis, product or service description, marketing strategy, financial projections, and an appendix. Let’s take a look at each component:
Executive summary: This sets the tone for the rest of the document and determines if readers will read the entire plan. Make it compelling by highlighting the key points of the business opportunity, the product, the potential customers, and the marketing strategy.
Company description: This is an overview of the business structure. It includes information on the business model (will you make money through subscriptions or retail?), business structure (is your business a sole proprietorship or LLC?), and leadership.
Market analysis: This demonstrates whether you understand the market. It should describe the expected demand for your product/service and explain your strengths and weaknesses compared to your competition.
Product/Service Description: Describes the product or service you will offer. Include information on price, patents, production processes, and customer benefits.
Marketing strategy: This section outlines how you plan to reach your target customer base. It details your marketing channels and how you will use them. For example, you choose affiliate marketing because your research shows that 75% of your niche market follows influencers.
Operating plan: This section provides detailed information on how your business will run. It includes the business's physical location and labor and material requirements. For instance, you need email marketing software to promote your product/service.
Financial projections: This section contains budgets, targets, and cash flow forecasts. Include information on any sales and business-related expenses you have incurred so far.
Appendix: Here, you will provide copies of the documents mentioned in the business plan, such as your business license, IPO applications, financial statements, etc.
The example above is the table of contents for a restaurant business plan. It starts with the executive summary and outlines the other fundamental elements needed in a business plan.
There is no set order when writing your business plan; you can combine or expand sections as you wish. Say you’re creating a business plan to attract investors. You might group the market analysis and financial projections sections to highlight the business opportunity. However you organize, the executive summary always comes first.
3. Don't Give Up Your Day Job
If you’re planning on quitting your day job to work on your business venture, don’t. Just look at the facts. The average time to profitability for many small companies is three to four years, and almost half of new businesses fail in the first five years.
Working a full-time job and side hustle is challenging, but it is a low-risk strategy for starting a new business. Mistakes aren’t catastrophic when you have a consistent source of income. It gives you a safety net to pursue various opportunities. Moreover, you can use part of your income to grow your business faster.
If you decide to quit your day job – some side hustles are harder to juggle than others, or the demand for your product/service may be explosive – we recommend saving at least six months’ work of living expenses. That prevents you from depleting your personal savings or incurring unnecessary debt. Be realistic about how long it will take to see a steady cash flow.
A note of caution: If your business structure is a sole proprietorship, you should save for business insurance to protect your main revenue stream from personal liability claims.
4. Buy Limited Assets and Equipment
It is important to differentiate between what is essential and what is a nice-to-have when you start a business with no money. Do you need an eCommerce website now, or could a third-party platform like Amazon or Etsy effectively meet your needs? Do you need a warehouse to store your inventory, or could your garage or dropshipping work just as well?
You shouldn’t spend money on keeping up appearances. Take a minimalist approach and only purchase the assets and equipment you need to get the business going. For some online businesses, this may be a computer and internet connectivity.
Additionally, the internet is full of free software to help you lower various startup costs, from accounting to marketing. You can create professional-looking websites for free on WordPress. You can design social media marketing materials for free on Canva. Do you need to calculate your billable hours accurately? There’s a free tracker app that helps you do that.
5. Invest Wisely
As your business starts making money, it is prudent to set aside some of the cash flow to reinvest in the company.
Internal financing gives you the funds you need to grow your business while minimizing the need for business loans. In the short run, it eats into what’s available for living expenses, but in the long run, it reduces future liability.
The exact investments you choose to make will depend on your business. However, a good rule of thumb is to invest in revenue-generating activities. Let’s say you run a thrift store on Instagram. You should invest in paid ads or influencer marketing instead of expanding your storage capacity. The former helps generate sales while the latter consumes revenue.
6. Wear Multiple Hats
This step follows in the same vein as the previous one of limiting unnecessary costs. Business owners must fulfill multiple roles until they can afford to hire employees. These roles include administration, customer service, website management, accounting, and more.
Many of the online tools mentioned earlier are intuitive and don’t require intensive training to use. Moreover, the internet has tons of free resources like blogs where you can learn how to get clients on LinkedIn and other relevant skills.
In the YouTube screenshot above, top marketer Neil Patel shares social media marketing mistakes people make that prevent them from performing well.
Wearing multiple hats is a lot of work, and you will make many mistakes. But it will give you first-hand experience of what you need to make your business succeed. You will gain insight into how every part of your business operation works and be able to onboard employees effectively when you finally hire them.
7. Find a Silent Partner or Angel Investor
You don’t have to start your business alone. Silent partners or angel investors are a good option if you need upfront capital and don’t qualify for or want institutional financing.
Silent or limited partners are individuals whose contribution is limited to providing capital. They don’t participate in the operation and management of the business and, thus, are only liable for losses up to their investment total.
Angel investors are individuals who provide financial capital in the early stages of a startup in exchange for equity in the company. Unlike silent partners, they have a say in the daily management and operation of the business.
While both silent partners and angel investors provide capital in exchange for equity, there are differences between the two that you may consider before bringing them on board. Say you’re looking for an injection of capital without giving up substantial control of your company; a silent partner may be the way to go. On the other hand, if you need industry connections and funding, you’ll most likely end up with an angel investor.
The advantage angel investors and silent partners have over banks are you can tap into their knowledge and network to propel your business. Despite the name, silent partners are rarely quiet and will help grow your business.
8. Get Financing for Your Business
The title of this article is how to start a business with no money, but you will eventually need money as you grow. According to CB Insights, 38% of small businesses fail because they run out of money.
The obvious choice for small business financing are loans from the bank or an alternative lender. Whether you choose a personal loan, home equity loan, or a line of credit, these loans come with interest rates, fees, and conditions. For example, you must be employed to receive an IRS loan, and if you leave employment to work on your business, you must repay the loan within 60 days.
Below are other financing options you can take advantage of to scale operations:
- Incubator and accelerator programs – incubators and accelerators provide resources to new businesses, including capital, mentorship, and workspaces. The application process is highly competitive, and you may have to share your company’s equity.
- Business grants – are free capital investments provided by government or community development corporations. They are typically awarded to businesses supporting disadvantaged communities and have strict specifications on how you should spend the money.
- Business credit cards – are the easiest way to get financing, but they come with steep interest rates and upfront fees on cash advances. Use these on a short-term basis.
- Crowdfunding – is the process of raising funds through donation platforms like Kickstarter, SeedInvest, or GoFundMe. People contribute funds to your business without expecting anything in return (unless you mention a reward for donating). The downside to crowdfunding is it can take a long time to reach your goal.
- Friends and family – if people in your personal network can support your startup, ask them to invest. It can be tricky to go into business with close friends or family, so choose carefully and prepare a business proposal with clear business expectations.
A zero-cost startup isn’t the same as a zero-cost operation. As your business expands, you will need additional funds to meet business needs. Traditionally banks are the go-to institutions for financing, but there are funding alternatives, and some won’t cost you anything.
In Closing
As incredulous as it sounds, you can start a business without money. You need to be resourceful, hard-working, and patient. It is easier to begin a service-based business with no capital than a product-based one, but the latter is by no means impossible.
This eight-step guide on how to start a business with no money provides multiple sources of business funding that won’t cost you upfront. They include silent partners, angel investors, incubator programs, grants, and crowdfunding campaigns. Many of these will require you to have a business plan, so we added an overview of how to write one.
In addition to funding resources, you will need to follow best practices to ensure you have a profitable business in the long run. These were vetting your business idea, investing in revenue-generating activities, minimizing costs with online tools, and multitasking.
Start your business with no money by following these tips. It might just be the best decision you ever made.
