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Unlock This CourseWhen starting a business, one of the first questions entrepreneurs ask is "Where will I get the money?" Personal savings are often the first port of call. This means using your own money that you've saved up over time to fund your business venture. It's like dipping into your piggy bank, but for something much bigger!
Personal savings are a crucial internal source of finance because they give you complete control over your business without owing anyone else money. Think of it as the foundation of your business house - it's your own solid ground to build upon.
Key Definitions:
Personal savings can include money in your current account, savings account, ISAs, premium bonds, or even money from selling personal items like a car or jewellery. Basically, any money you own that you can access relatively easily.
Using your own money to fund a business comes with several brilliant benefits that make it an attractive option for many entrepreneurs.
When you use your own money, you don't have to answer to anyone else. You make all the decisions, keep all the profits and maintain 100% ownership of your business. It's like being the captain of your own ship!
Unlike loans, you don't have to pay interest on your own money. Every pound of profit stays in your pocket.
Your money is available immediately. No waiting for loan approvals or investor meetings.
You don't need to put your house or other assets at risk as collateral.
Sir James Dyson used £10,000 of his own savings (plus money from selling his previous business) to develop the first Dyson vacuum cleaner. He spent 15 years and created 5,126 prototypes before achieving success. His willingness to risk his own money showed his commitment and eventually led to a multi-billion pound business empire.
While personal savings offer great benefits, they also come with some significant drawbacks that every potential entrepreneur should consider carefully.
Most people don't have unlimited savings. Your personal pot of money might not be enough to fund everything your business needs, especially if you're planning something ambitious.
If the business fails, you lose your own money. This could affect your personal financial security and future plans.
Money used for business can't be used for other things like buying a house, going on holiday, or emergency funds.
Limited funds might restrict how quickly your business can grow or expand into new markets.
Many successful businesses started with personal savings. Let's look at some inspiring examples that show how ordinary people used their own money to create extraordinary businesses.
Personal savings work particularly well for certain types of businesses, especially those with lower start-up costs.
Many successful restaurants and food trucks started with owners using their personal savings. A typical food truck might cost £20,000-£50,000 to set up, which is achievable through personal savings for many people.
E-commerce stores, blogs and digital services often require minimal start-up capital. Many successful online entrepreneurs started with just a few hundred pounds from their savings.
The founders of Innocent Drinks used £500 of their own money to buy fruit and make smoothies for a music festival. They set up a stall with a sign asking "Should we give up our jobs to make these smoothies?" with two bins marked "Yes" and "No". The "Yes" bin filled up and they used more personal savings to start the company. Innocent was later sold to Coca-Cola for over £300 million!
Before diving in with your savings, it's crucial to work out exactly how much money your business will need. This helps you decide if your personal savings are sufficient or if you need additional funding sources.
Different businesses require different amounts of money to get started. Here's how to calculate what you'll need:
Computers, machinery, vehicles, furniture - anything physical your business needs to operate.
Rent deposits, utility connections, insurance and any renovation costs for your business location.
Money to cover day-to-day expenses like stock, wages and bills for the first few months while you build up customers.
If you decide to use personal savings, there are smart ways to make your money go further and reduce the risks involved.
Don't just throw all your money at the business at once. Strategic planning can help you use your savings more effectively.
Never use 100% of your savings for business. Keep at least 3-6 months of personal expenses saved separately for emergencies.
Use a portion of your savings to test your business idea first. If it works, you can invest more. If not, you haven't lost everything.
Many successful businesses use personal savings as part of a funding mix. Your own money can be the foundation, but you might combine it with other sources to get the full amount needed.
Sarah wanted to open a bakery costing £30,000. She had £15,000 in personal savings, borrowed £10,000 from family and got a £5,000 government grant for new businesses. This combination gave her the full amount while reducing personal risk and maintaining control.
Sometimes your personal savings simply won't cover what your business needs. Recognising this early helps you plan for additional funding sources.
If your business plan shows you need more money than you have saved, or if using all your savings would leave you financially vulnerable, it's time to consider other options alongside your personal money.