What are personal savings?
Personal savings are the money that a person, rather than a business or organization, keeps in an account in a bank or similar financial organization.
What are some advantages for using personal savings?
Using your personal savings is the easiest and most cost-effective way to provide your own financing for a new business.
You will know exactly how much money is available to run your business and you will not have to spend time trying to secure other forms of funding from investors or banks.
Self-financing your business gives you much more control than other finance options. It also means that you don't need to pay back or rely on outside investors or lenders, who could decide to withdraw their support at any time.
You will retain full ownership of the business, which in turn means that you will receive 100 per cent of future profits.
If you fund a business yourself, you will be forced to live within your means, only investing in business equipment and marketing when you need to. This can help you to prioritize your business expenditure and avoid excessive spending.
What are some disadvantages for using personal savings?
Using your personal savings can be risky, and you may not have enough to cover all the funding you need.
Mixing personal and business funds can cause accounting and tax issues.
Using your own money to finance your business may put a strain on your family and personal life. You may not have enough money left over to cover your living costs.
If your business were to fail, you could lose your home and other personal possessions.
If you fund your business alone, you will have to develop your own contacts and mentoring opportunities.
Once you’ve stretched your budget as far as it goes, consider explore other options for financing your business.
Don’t completely drain your savings. This is money that you have saved up for your future and for rainy days – using all of it can put you in a very precarious situation if something goes wrong.
Give yourself a cap. Some financial advisors say to leave yourself at least $5,000, which is a good rule of thumb, although if you have a lot of money in savings it might be better to keep the number at no more than 50% of your savings.