How will you prove you have substantial faith in your proposed business if you cannot invest your personal savings in it? How will you convince others to contribute to growing your business ideas if you prefer to borrow money to begin rather than putting down your own money? There is no way your business will ever succeed if you do not believe in it to the point of risking your personal savings in it.
Using your personal savings or personal funds to start a business is known as owner’s equity. It is also sometimes referred to as risk-capital because the money you invest into your business faces the risk of loss if things go wrong. But using personal funds to start your new business is the best route to take if things would go right – since this carries fewer risks for you and the business as a separate entity.
It is true that you will lose your personal funds if your business fails, but it is also true that investing your personal money in your business reduces the risks of failure for the business. The reason for this is because you do not have to repay anyone for the invested capital and you or the business is not put under pressure to perform or repay at set dates. But investing loans in business puts undue pressure on yourself and the business because of repayment with interests at set dates.
There is however no way you can start your personal business without investing some of your personal funds in it. Even bigger organizations started with the pooled funds of its founders before other investors or shareholders came to join in. A share capital in a limited liability company is the money contributed by owners of the business at kickoff.
If you hesitate for any reason to commit your personal funds to your business, then it means you lack faith in the viability or sustainability of the business. It is therefore recommended that you return to the drawing board and evaluate your business ideas again to see why it is worthy of pursuit.
Financially speaking, every fund committed into a business is an investment and not a savings. When you use personal money to buy business assets and operational equipment which could fluctuate in value over time, then what you have is an investment given the risk associated with the values of the purchase. But where you commit personal funds into a bank for safekeeping where it faces no risks of loss, then what you have is savings and not investments, unless of course you buy company shares.
The best way to begin your new business is to start while you are still employed somewhere else – working part time on it, until you have sufficient leverage and resources to go full-time into your own business. The second option is to save enough money from your current job and then quit to concentrate on your new business.