There is a hot new term being bandied about in HR and payroll circles: bootstrapping. The term applies to different things ranging from marketing to purchasing. Given our area of expertise, we thought it appropriate to address the topic of bootstrapping payroll.
So what is bootstrapping payroll and, more importantly, how do you do it? The first thing to note is that the term originally came from computer programming. In computer lingo, bootstrapping is a series of commands initiated when a computer first boots up. Those commands get the computer from bios to operating system. Many of the parameters that indicate how an OS functions are contained within its bootstrap commands.
In the world of business, bootstrapping is essentially funding your own operation right from the earliest stages of a startup. It is about relying on your own financial resources rather than taking out loans or courting investors. Bootstrapping payroll means funding your startup's payroll, from your own resources, until the business is self-sufficient.
Bootstrapping Is Risky Business
It should be obvious that bootstrapping payroll is risky business. Not only are you risking your own financial resources on the company itself, but you are also using those same resources to fund hiring and paying those employees you expect to contribute to the success of your venture. Get it wrong and you could lose your shirt.
Having said that, bootstrapping is an attractive alternative to people who want to build a dynamic startup without any financial obligations to anyone else. Bootstrapping gives new business owners complete freedom of control over every aspect of their enterprise. This can be a tempting carrot that is too hard to resist.
If you are thinking of bootstrapping a potential startup, here is how to do it in terms of payroll:
Outsource – Believe it or not, outsourcing your payroll functions is going to be cheaper than handling things in-house. It costs money to hire, train, and manage payroll and HR staff, but less money to outsource. Your desire to bootstrap means you need to save money wherever possible.
Limit Payroll – Next, do whatever you can to limit payroll as much as you can. That might mean you will have to fulfill several roles and work well in excess of 40 hours per week to get your business off the ground. But that is the price you pay for business independence. It will be worth it in the long run.
Hire for Quality – It takes a lot more money to recruit and hire than pay someone what he or she is worth. So as you hire, focus on quality talent even if it costs you a little more. High quality people will grow your business and reduce the risk of you falling into the hire/fire cycle that costs so many startups so much money.
Utilize Contractors – Where it makes sense to do so, utilizing contractors can be a very useful step in building a new startup. Just make sure any contractors you do bring on are legitimate contractors according to IRS regulations. The last thing you need is trouble with the tax man.
Pinch Every Penny – Lastly, your bootstrapping efforts will be a lot more effective if you learn to pinch every single penny. Do not spend more than you have to on anything. That includes payroll services.
It is true that bootstrapping your payroll is risky. But more and more startups are doing it, with the expectation that self-funding will result in larger profits down the road and a clearer, more sustainable mission along the way.