Student Entrepreneurs: Managing Debt, Raising Capital and Juggling Loans

This is an article I wrote for PIVOT Magazine, Startup Canada's entrepreneurship magazine. It is an article in a series of a joint campaign, called Fuelling a Startup Generation, by Startup Canada and Intuit Canada to advance the conversation and celebration of young entrepreneurs across the country. For more information about the series, please read the original article found on PIVOT Magazine

Photo Credit:  dcJohn

Photo Credit: dcJohn

Finance isn’t most people’s favourite topic of discussion. Be it personal or business finances, many consider the subject too hard to grasp, too tedious to deal with, or just plain boring to talk about. Unfortunately for our startup ecosystem, a reluctance to discuss finances and debt could be what stalls out many new businesses from growing bigger, or worse, what eventually derails them off the track to success.

With young entrepreneurs starting businesses at an earlier age, often while still in school or immediately after graduation, they are finding themselves juggling student loans with company investments and an even greater need to grasp the ins and outs of business finances. A recent poll of more than 400 young entrepreneurs, conducted by Intuit Canada, found that nearly twice as many are likely to finance their business using personal savings rather than by borrowing money from banks.

Michael Di Lauro, a ProAdvisor at Intuit Canada, says it’s not uncommon for young entrepreneurs – or any new entrepreneur for that matter – to gloss over the financial aspects when the company is in its early stages.

“There’s so much to need to know about starting a new business, that finance and cash flow aren’t readily top of mind,” says Di Lauro. “But gaining financial literacy skills and learning financial management is crucial. An entrepreneur can have a great product or a great idea, but mismanaged finances will create problems.”

If a young entrepreneur doesn’t have a strong financial background, there are lots of ways they can tap into pre-existing resources, says Di Lauro. Consider enlisting the help of mentors, taking intro courses or workshops, or building relationships with bookkeepers and bankers – these kinds of experts and outlets can help you get a handle on what you need to know to control debt, raise capital, and manage your day-to-day business finances.

Chris Smith, Founder of OPIN Software | Photo Credit:

Chris Smith, Founder of OPIN Software | Photo Credit:

Chris Smith, founder of Ottawa-based startup OPIN Software, agrees with Di Lauro’s advice. In 2011, Smith started his web development company immediately after graduating from Carleton University. One of his first steps was to establish a banking relationship with an account manager whom he’d worked with since he started his company.

“We met with the bank on a biweekly basis. As our company grew, they grew along with us,” says Smith. "When starting a business immediately after school, banks are a great option for young entrepreneurs to consider."

“Banks lend against your company, and not you as a person,” Smith continues. “Banks are more interested in your business success, and not necessarily at your own personal finances.”

Smith also reminds entrepreneurs to keep personal finance and company finances separate.

“For solopreneurs, this is especially difficult. However, think of your business as an empty sheet with no financial history. Keep it separate from your personal finances.”

Student entrepreneurs must also consider the efficiency of their processes when balancing debt while raising capital. Since starting OPIN Software two-and-a-half years ago, Smith has bootstrapped the startup all the way through. With the company doubling in growth each year, Smith has ensured that business processes have been as efficient as possible. Since closing their first deal, money earned has gone right back into the day-to-day operations to fund OPIN’s growth.

“I would have loved to have an angel investor give us a million dollars,” says Smith. “At the same time, it has forced our company to manage our money so tightly and efficiently. Using the resources we have, we have processes in place to build the best company we can create, and have kept our bootstrapped model growing.”

Steve Tannahill, Co-Founder of Tattoo Hero | Photo Credit:  Cole Burston

Steve Tannahill, Co-Founder of Tattoo Hero | Photo Credit: Cole Burston

Steve Tannahill, co-founder of Ottawa-based startup Tattoo Hero, encourages student entrepreneurs to take more time at the beginning of their ventures, to make sure they’ve got the right business skills and plans in place before launching their ideas.

“Whether you’re still in school or just coming out of it, you have a bit more time to develop your idea,” Tannahill says. “Check out different startup communities, meet with other businesses and startups. Use your time to come up with a thorough plan.”

And once they’ve got a handle on their company’s base finances and it’s time to start raising capital, Tannahill encourages millennial entrepreneurs to tap their networks and contacts as a starting point. For entrepreneurs currently in school, he suggests exploring opportunities available through their university.

“There are some funding programs which do not require you to give up equity. This is a useful resource for student entrepreneurs,” Tannahill says.

Apart from borrowing money from banks and looking for investors, the Internet has enabled entrepreneurs to find new ways to raise capital.

“With the rise of crowdfunding platforms such as Indiegogo and Kickstarter, your idea can get noticed and funded without traditional channels,” says Di Lauro. “As a student entrepreneur, you likely have student debt and minimal credit history. Students can capitalize on these platforms, which doesn’t rely on credit history.”

Aspiring student entrepreneurs have many options available to raise capital while balancing debt. The recurring solution that Di Lauro, Tannahill and Smith have stated is gaining a better understanding for financial literacy. Student entrepreneurs can reach out to resources available to them through their networks to build fundamental skills in debt and financial management. By doing so, students can eliminate one of the biggest barriers to their startup’s success.