Pros and Cons of Self-financing

When planning for the financing of a new venture, the reality is that as much at 90% of all funding for start-ups comes from the entrepreneur, family and friends.  However, many entrepreneurs seem to balk at the idea of relying too much on their own money. Beyond just the fact that for many new businesses this may be the only choice, there are clear advantages and disadvantages for the entrepreneur to rely on their own funding.

First the pros:

1. It is the easiest and quickest money to secure.  Nobody has to be convinced and no approval process is required.
2. It eliminates the complexity of adding more partners or shareholders.  Many experienced entrepreneurs will tell you that if they do another deal they will do a deal that they can create without partners.  It seems at times that managing partners can be as much of a challenge as managing the actual business!
3. Only the entrepreneur's aspirations need to be considered.  For example, if the entrepreneur wants to keep the business small to fit her lifestyle, she can without anyone second guessing her.
4. All of the profits and wealth go to the entrepreneur.  There is no dilution effect.  With more partners the entrepreneur has to grow a business larger to meet his personal goals for income and wealth plus those of the other partners.
5. When the time comes to exit the venture, the process is relatively simple.  There are not competing interests to negotiate.

There are also cons to self-financing:

1. Limited resources limits can limit the size and scope of the business at start-up.
2. Limited resources can also limit the growth of the venture into the future.
3. The entrepreneur is the only one at risk.  If the venture fails, all of the consequences are the entrepreneur's to deal with.
4. The entrepreneur may not have all of the skills, knowledge and experience needed to successful launch and grow the venture.