The Entrepreneur’s Financial Sacrifices

Over the last two weeks multiple entrepreneurs volunteered to me that they emptied their 401k retirement savings to fund their startup. While that financial sacrifice seems extreme to many people, to some entrepreneurs it’s the only way forward.

Reflecting on my journey, at one point I had $50,000 in personal credit card debt for Hannon Hill. Our company was doing well, but still sub-scale, and we desperately needed to invest in certain areas. I made the choice, fully self aware, that if things went badly I was on the hook for the debt. Yet, I pushed forward with the full belief that we’d make it and the company would thrive. Everything turned out well but it was scary for a period of time.

Entrepreneurs make a number of financial sacrifices, and here are a few of the more common ones:

• Salary Cut – Taking the plunge from being employed at a regular job to being a no-income entrepreneur is brutal. This is often the main reason people that want to be entrepreneurs don’t do it.
• Credit Card Debt – Banks aren’t in the business of lending unless there’s already a valuable asset in place so many entrepreneurs resort to credit cards. I like to think that Capital One is the number one non-family funder of entrepreneurs in the U.S.
• Retirement Plans – Programs like 401k plans incentivize people to save for retirement, but they also act as emergency savings accounts which can be tapped for any reason at great penalty. Entrepreneurs use these retirement plans as seed capital.
• Skipping Mortgages/Student Loans/Other Required Payments – Some entrepreneurs purposefully skip payments of other loans or bills in an effort use the temporarily saved cash to invest in the business, often resulting in a negative impact to their credit score. One entrepreneur would purposefully blur an account number on their payment checks so that the check couldn’t get cashed right away, thereby buying more time to be able to make the payment (not ethical but did work).

Financial sacrifices are a difficult and challenging part of the entrepreneurial journey. As with most things, the more struggle to make it succeed, the more rewarding the outcome.

What else? What are some more financial sacrifices?