This transcript was generated from the episode audio and may contain minor errors.
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Here's an interesting question for you. What's the downside of getting a lot of money? Well, it's not quite like that. It's more like what's the downside of getting funded or seeking funding for your business idea. In today's episode, we help a catering business owner weigh the risks of taking outside funding to grow her business.
That's kind of what it comes down to. It's not just free money. If it was always free money, that would be wonderful. But there are some potential downsides from financial pressure to loss of control. Let's talk about how she might be able to make the best decision.
Welcome, friends. I'm Chris Guillebeau, your host of Side Hustle School, bringing you daily episodes throughout the year, seven days a week, 365 days this year to be precise. So excited to serve our global community of side hustlers, aspirational small business owners, anybody who just wants to make extra money without quitting your job. You're the one I make this show for. And if you're busy, that's even better because we try to keep things tight, action packed in less than 10 minutes.
Today's question, as noted, what's the downside of getting funding? Detailed version and my answer coming right up. [Music]
Hi, this is Lauren from Nashville. I run a small catering business and I've been listening to your show for the past six months. It's been a huge help as I've been figuring things out.
Here's my question. I'm considering taking on outside funding to upgrade my kitchen equipment and hire a few more staff, but I'm nervous. I've heard horror stories about people losing control of their business or getting overwhelmed by debt. What are the hidden risks of taking outside funding? I wanna make sure I'm not getting into something I'll regret.
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All right, well, as I said, if it was free money, free money is great. Free money, take it, right? But of course funding is rarely free money. Funding either needs to be paid back or it comes with giving up equity or it comes with some other costs. Like there is always a cost to money that comes into your business from investors, right?
So it's a big decision. And while it can help you grow faster, it's definitely smart to consider the potential downsides. I should just say right up front, my bias in producing side hustle school, most of our stories, the great, great majority of our stories and our case studies, things I've written about in my books, we do not talk about getting funding because we encourage people to bootstrap and to start without spending a lot of money. I wrote a book called "The $100 Startup," which consisted almost entirely of case studies of people starting with very, very little money. And then you have ownership over your business and you're not beholden to anyone else, okay?
So that is the perspective that I approach this conversation from. But I also understand that for some businesses and for some seasons or for some situations, then you do need to take on outside funding. So you just gotta be aware of it. So Lauren here is asking about the hidden risks. Risk number one is loss of control.
Maybe it's not super hidden, but you are basically giving up some of your decision-making power. Or perhaps you might be feeling pressured, you might feel pressured to prioritize fast growth over other goals. So if you go with investors, the way to mitigate it is to be clear about your vision and ensure that they align with it. And if you're considering a loan, choose one with manageable terms that won't strain your cash flow. Now I mentioned pressure.
Financial pressure is huge with loans and other forms of debt. And so if your catering business hits a slow season or unexpected challenges, your obligations could quickly become stressful and that could lead to cutting costs and just all kinds of challenges. So the way to mitigate that is to create a realistic repayment plan based on your worst case scenario, not just your best case projections, okay? So we're actually gonna be talking, I got an upcoming episode all about how do you predict your profits and what's a way to do that. So coming up in the weekend workshop series.
So you wanna take your conservative estimate, not your best case forecast, okay? What is one other hidden cost, let's save this for last year, over investment in the wrong areas. So sometimes outside funding can tempt business owners to spend on upgrades or on hiring people that they don't truly need. And that can cause all kinds of other stress, wasted resources, difficulty maintaining profitability. So just be really clear about what you need this money for.
Start with a detailed plan for how you're gonna allocate the funding and stick to it. Don't be tempted to like, "Oh, I've got extra, I've got twice as much money as I hoped for, what else can I do?" Like be careful with that, I've seen a lot of people kind of get into trouble with that. So the best thing to do is bootstrap whenever possible, whenever it's not possible, try to mitigate the downsides. Listeners, if you have a question, something we can help you with, an idea you have or a struggle in your side hustle, whatever it is, sidehustleschool.com/questions, we will be featuring them throughout the year, along with updates from other listeners as they launch and grow their projects. Thanks so much for being out there.
My name is Chris Guillebeau, you're listening to "Side Hustle School." [Music]
From the Onward Project.
