I’m sure you’ve probably been told by others or at least heard this before, “It takes money to make money,” especially to start-up a business. I’ve been told this in the past, I’ve read this in books and magazines, and was even taught this in business school. This is an old saying and teaching, which I’ve found out to be untrue, and have discovered that it doesn’t take money to make money.
People often delay or never start a business, even though they have a great business idea that they’re passionate about, because of this old myth that “it takes money to make money.” They never pursue any of their passions because they don’t believe they’ll ever have the financial means or resources to do so.
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As stated above, I don’t believe it takes money to make money. Although, can using money to make to make money make the process of “making money” faster? Yes, it can.
But, can “using money to make money” make the process of making money more complex and complicated? Yes, it most definitely can!
Why Most People Never Start a Business
During my time in business school, we were taught that in order to start a business, you need a significant amount of capital to get a business off the ground and running. The start-up capital or “seed money” can come from various sources, such as your personal savings, personal loans, investors, business loans, venture capitalist, or family and friends.
The seed money would then be used to cover all of the start-up costs associated with your business, including buying or renting a building for your business, hiring staff, purchasing inventory, purchasing equipment for your business, advertising costs, legal fees, and other start-up costs.
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This results in you spending a lot of money before your business is even up and running, or even turns a profit. You often hear that starting a business is extremely risky, well, this is why it’s so risky, you generally have thousands of dollars invested in it before you know whether or not it will be profitable. This is also the same reason why so many people never start their own business.
You Don’t Need “Seed Money”
When you use start-up capital or “seed money” to fund your business, and use it to make hefty purchases before you’re even open for business, it can speed things up, but it’s also very risky. It can lead to financial stress which can greatly impact your life outside of your business, and turn something you use to be passionate about into a nightmare! It can also cause you to become quickly discouraged and give up on your business faster.
So many business start-ups believe they have to spend a lot of money to get their business up and running. But, what actually ends up happening is they invest a significant amount of their life savings into their business, take out multiple loans, or even a second mortgage on their house. Putting themselves in a rough spot financially. Then, when their business doesn’t instantly become profitable, which few do, they quickly begin to panic and become discouraged.
This is a very risky and common process of a business start-up, because you either end up spending your life savings, go into debt, or took on investors who want to see a return on their money, while you have no idea whether or not your business is going to succeed or not.
It Can Take Years Before a Business Is Profitable
Say your business does succeed and it begins to generate revenue, it could still take years before you ever see an actual profit, and that’s “if” your business succeeds.
Here’s the hard truth: The vast majority of all business start-ups fail, F-A-I-L. Usually, they fail within the first year of business. What happens if your business fails?
Well for starters, you’ll probably end up losing your life savings. Most likely won’t be able to pay back all of the loans you took out to pay for the start-up costs, which will force you to declare bankruptcy. Or, you’ll have a lot of pissed-off investors who want their money back.
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This is an example of what can happen when you “use money to make money.” It can speed up the process of getting your business off the ground, but at the same time adds a lot of risk and unnecessary stress. I also believe it takes the value and fun out of building a business and your own brand. I’m a firm believer in “building something from nothing” kind of guy!
It Doesn’t Take Money to Make Money
I don’t believe the old saying “it takes money to make money.” If it did, there is no way this country would have become as prosperous as it is today. In fact, a big passion of mine is creating value from nothing!
The United States of America most certainly wasn’t founded or built on money. Instead this country was built by immigrants who arrived here with nothing more than the clothes on their backs. To survive and support themselves they started their own little side hustles and businesses, or even bartered when starting out. Whether it was trading fur for food, or food for fur.
Here’s an old school example: Starting small, more people would begin to want their fur. To keep up with the growing demand, they would then hire people to hunt and trap to fill the new demand. Now generating a good amount of revenue, they might have invested in more overhead for their business or opened up a shop.
As their business continued to grow and demand increased, they could expand their fur business to more locations to reach more customers, and so on and so on…
Now obviously this was just an example I made up, but it doesn’t mean it’s unrealistic. This country was built on nothing more than passion and opportunity, and as a result, it also created an abundance of wealth.
The Only Capital You Need Is “Time”
I truly believe that you can still use this same approach when starting a business today. By taking something your passionate about and turning that passion into a product or service. Before investing in any significant overhead, infrastructure, advertising, or anything else that can break the bank, just take the time to share your passion with others and show them how they could benefit from your product or service. Then once you get a small clientele and begin generating revenue, grow your business by reinvesting that revenue.
By taking this approach you can start your business on the side, while still working a regular job. You’ll also have the benefit of not having any financial stress associated from your business, since you didn’t make any significant investments into your business outside from the money you generated from it.
This approach obviously takes more time, but one huge benefit is it take very little if any money and start-up capital to build a business this way. It’s also a lot more fun, since you’re “building something from nothing.” Plus, you’ll end up building a much more solid foundation for your business and brand.
By not using any start-up capital when starting your business, you’re truly building your own value. This will not only eliminate a bunch of the financial risks that go along with starting a business, but you’ll have a lot of fun along the way!
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Author: Tyler DeBroux
Tyler started Oddball Wealth towards the end of 2014 after graduating college, as a way to stay relevant in his area of study, stimulate his mind, and to educate and help others.
Tyler has worked in the financial services industry, as a financial advisor, helping his clients make wise financial decisions and personalized long-term financial plans. Since graduating college in December of 2014, Tyler has paid off more than $15,000 in student loan debt and counting, his goal is to have all his student loans paid in full by the in of 2016.
Tyler is an entrepreneur and an expert in personal finance. Two of his many hobbies include investing and building online businesses. He is also a big advocate of early retirement and an aggressive saver, who utilizes any financial resources and tools available to him to help reach his goals for achieving financial independents.