It isn’t hard to understand the allure of being self-employed. It is natural to assume that those of us who are more satisfied in our professional lives are also more satisfied in our personal lives, have lower levels of stress, and are generally better able to adapt to changes in their own environments.

But if it was easy, everyone would be self-employed and able to earn a living on their own terms. The reality is that earning a living in this way is not something that one can decide to do on a whim. It requires preparation, planning, and dedication in order to pull it off and to sustain it. Much of the time, when people are funding their own business venture, they are risking their own assets. If the business fails, this would mean that they would incur a significant personal financial loss.

Therefore, deciding to take the plunge and enter the world of self-employment is not something that you can decide to do suddenly on a whim. Not only will you be exposing yourself to hardship resulting in financial damage and permanent marks on your records, but the impact of a failed business venture on an individual’s emotional and physical health can be severe. This should not scare you or deter you from pursuing your professional goals, but it should encourage caution and convince you of the need to tread carefully.

Your Own Money

If you have any savings already in the bank, then you should be willing to use them. There are a number of reasons why it is important for you to be willing to invest your own money, and why it is ultimately in your interests to do so. First and foremost, this is your money. Usually, when people are funding their first business venture, they are doing so with someone else’s money. Whether it is a bank, another investor or investment group, or even a grant that they have earned, the majority of first time  or new entrepreneurs will be funding their business venture with someone else’s cash.

Using your own cash makes a big difference to the level of pressure and obligation that you feel. When you know that it is someone else’s money you are using, it creates an extra sense of obligation and an extra pressure to deliver on results.

If you have the cash necessary to fund, partly or wholly, your business venture, you will have a hard time convincing other people to invest their money in you. If you aren’t confident enough to put up your own money, this signals to other potential investors that you have doubts about the project.

The drawbacks to using your own money are what you would expect. Mainly, it is that you are exposing yourself to considerable personal risk, much more than you would be if you were using a bank loan or another investor’s money to fund your venture. Some people find that this added element of risk is an effective motivator. But, relying on danger to motivate yourself is a shaky path to venture down.

Instead, you should see the involvement of your own money and the risk that you accept as a result of any business venture, as a good reason to plan carefully beforehand. Rather than just throwing your money at the business, you should know exactly what it is going to be used for and what you hope to get back from it.

Bank Loans

Seeking a loan from a bank is probably the oldest and most well-known method of securing business funding. It is not always easy to secure the agreement of the bank to issue the loan. You will need to be able to put forward a legitimately strong business case and present a business plan that convinces the bank they will see a return on their investment.

In order to seek investment from a bank or similar financial institution, you will need to have all your ducks lined up in a row and be ready to make your case.

The advantage of going through a bank is that everything will be done securely and in an organised manner. A big part of what banks do is investing in business ventures and, so you will certainly be in the right place to secure the investment that you need.

Of course, if you have a bad credit score or have had financial difficulties in the past, you may find it difficult to obtain funding through banks. If you are planning to apply to a bank for a loan to fund your business, you will want to check your credit score beforehand. You should also familiarise yourself with ASNEF; you can click here to read more now.

Private Investors

Raising money from private investors can be a little less daunting than seeking assistance from banks. While there are some regulations that govern the movement of large sums of money, private investors generally have a lot more freedom to manoeuvre and to negotiate than the staff at banks do. This can be preferable for some businesses, especially if they would otherwise not be in a position to secure a loan.

Because private investors have more flexibility, some entrepreneurs prefer to take riskier, more adventurous ideas to private investors first. Flexibility also means that there are many more options regarding repayment terms when you strike a deal with a private investor. Generally, banks will have very little room for negotiation and will have a default position they attempt to fall back on.

Crowdfunding

Crowdfunding is becoming more and more popular as time goes on. This new funding method has exploded in popularity in recent years but has spawned just as many cautionary tales as success stories. Crowdfunding relies on lots of investors, each making a small contribution towards a project’s budget, rather than a small number of investors making large investments. It is generally accepted that those who invest in a crowdfunding project won’t be given any shares in the company.

Being self-employed has many advantages, but it is also potentially risky. It is, therefore, essential that you understand exactly what it is that you are getting into when you make the decision to become self-employed.

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