Have you got a new business idea? And are you considering using your personal savings to fund your business idea? Self-financing your new business isn’t an easy decision to make. It can have both upsides and downsides. Before you decide, you need to know the advantages and disadvantages of using your personal savings in business. If you understand each side of the coin, you can make a fair and considered decision.

This guide discusses the advantages and disadvantages of using personal savings in business funding.

The advantages of using personal savings:

  • It’s easy: you already have the money there, ready to use
  • You’re in control: the funds are yours, so there’s nobody else to answer to
  • The profits are yours: more shareholders means more people to split profits with
  • Mindful money management: you’re likely to be more cautious of spending if it’s yours

The disadvantages of using personal savings:

  • You’re limited to what you can afford: your savings may only get you so far
  • It’s risky to spend all your savings: you might need your savings for a personal emergency
  • Your responsibility for success: having more people behind your business could lead to more success
  • You need a credit rating: for loans or mortgages

Advantages and disadvantages of using personal savings to fund your business


It’s easy

The biggest appeal of using your personal savings to fund your business is that it’s easy. The money is already yours, so you don’t have to spend time searching or applying for finance. In business, time is money because you could be spending those valuable minutes making money or growing your business. 

But using your own cash isn’t just an easy solution when starting a business – using your own money also makes leaving a business easier. Things might not work out for your business. You might decide to walk away from it in the future, which is difficult if you have loans and competing investors that require negotiations – something to consider.

You’re in control

The main reason that entrepreneurs do not seek outside investment is out of fear that they’ll lose control of their business. Your business is yours. The only way to guarantee it stays that way is if you don’t take on external investment. The decision is yours – you can decide whether to grow your business with investment or keep your business yours.

A lender or investor will want their money back and may pressure you to make it a priority. Investors may also have their own ideas for direction and thoughts on how you should run your business. And those might not align with your ambitions.

The profits are yours

Profit is another consideration for the advantages or disadvantages of using personal savings to fund your business. You’re likely to gain financially from the business. Do you want to share your profits with an investor?

The interest and repayments the bank will want after it gives you a small business loan will come from the money your business makes. Any angel investors who invest cash will expect a stake in your company.

If you have other shareholders, you must share the profits, which means less profit for yourself. You’ll also need to pay them dividends – dividends are a percentage of the company’s earnings.

Mindful money management

Running a business, big or small, can be really difficult. You need motivation and discipline to succeed. Using personal savings in business can help make you more disciplined when managing your business.

You worked hard for your money, so it’s likely that you are more attached to it than if someone else gave it to you. That might make you manage it better than if you were to get it from somewhere else. You’ll be less likely to participate in excessive spending and be more frugal with your cash.

One way to help you manage your finances is to use a specific tool to make it easier. Countingup is a business account with intelligent features like built-in accounting software and financial management features, made to do just that.

Its expense categorisation feature can sort your costs automatically, so you can see where your savings are going. And it has handy features like a real-time tax estimate and tax pots to help you save for your tax bill each year.


You’re limited to what you can afford

When you look at the advantages and disadvantages of personal savings for your business funding, it’s important to address why you need extra funding. Do you want to expand into a new market? Or maybe you want to build a new product or service?

If you use your personal savings to fund your new business, you’re limited to what you can afford to give. That might mean you don’t have enough cash to succeed with your project. You could miss out on growth opportunities with a restricted wallet to draw cash. 

For example, you might want to expand to a new marketing channel, like Meta, to improve your business’ reach. The funds you’ve saved could fall short of what you need to really make it work for you. But with outside investment, you could nail your strategy and implementation to make it a success.

It’s risky to spend all your savings

Using your savings can be risky, so it’s a disadvantage. You should only invest personal savings you can afford, but it’s important to remember that circumstances can change quickly. You may need those savings urgently.

For example, you could invest savings into your business. But at the same time, you continue to work another job to support your family. That company could unexpectedly go under, which means you lose that security and may need savings to fall back on.

But the savings you invested into your own business are spent, meaning you can’t use them to pay for your home living costs. This situation could strain your personal life, lead to arguments and affect your relationships with those closest to you. It’s worth considering your risk appetite and whether this is something that you could manage.

Your responsibility for success

Not having outside investment can pose another disadvantage. That disadvantage is you’ll only have your own skills, experience and knowledge available. We’re sure you’re super talented and have brilliant skills to bring to your business. But if it’s just you behind the business, it’s likely you will only be able to take your business so far without needing other skills.

There are lots of different investment opportunities across industries. One investment option is an angel investor. They often invest in industries they know well and have likely worked in previously. An external investor could offer helpful guidance to grow your business.

For example, an investor may help secure a deal for manufacturing your product that you can’t get without them as they have better industry connections. When there’s only one of you, you’re relying on one person to make it successful. Whereas if there are two or more of you, that means multiple people are working behind the scenes to make your business great.

You need a credit rating

Credit ratings get overlooked massively by small business owners. But credit ratings are something you need to consider when you’re running a small business.

If your business takes out loans and pays them back, it’ll build up its credit score. And that might be valuable if you ever need to borrow more money for growth plans. It’s harder to secure a loan for your business if you haven’t built up a good credit rating. And not having a good credit rating might halt your growth and expansion.

For example, when you pay off a small business loan, there’s a good chance you’ll get a better rate on a mortgage. That means your business can buy the property it needs or take out larger loans to fund expansion plans. Never underestimate the power of a good credit rating!

Take care of your finances with Countingup

If you use your personal savings in business or receive investments from an external source, you still need to make the most out of what you have to grow and manage your business. That means you need something to help you manage your finances. 

Countingup is an intelligent business account with different features to help you manage your business, like built-in accounting software, financial management and tax prep tools. And you can do it all on the go via your phone. Easy peasy! 

There are lots of different features to help you manage your business admin. Receipt capture and automatic expense categorisation to help with your bookkeeping, real-time tax estimate and tax pots to help you save for your tax bill and live profit and loss so you have eyes on your cash flow.

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