Personal savings

Personal savings are money that the owner of a business takes from their own savings and puts into the business. The cash comes from the owner rather than from a bank, an investor or a supplier, so there is nobody to repay and nobody new to share the business with.

Personal savings are especially useful for sole traders and partnerships. These businesses are not companies, so they cannot raise money by selling shares, and the owner's own money is often the first finance available when a business starts up.

For example, Ben makes wooden toys and sells them at craft fairs. He needs about £3,000 for a lathe, a sander and materials, but he has £2,000 in a savings account. He uses it to buy the lathe and a second-hand sander, because a new one would not fit his budget.

Advantages of personal savings

• Full control: no lender or investor has a say in decisions, so the owner chooses what to buy and how the business is run.
• No borrowing: there are no loan repayments or interest charges, which keeps costs down when money is tight.
• Careful spending: an owner spending their own money tends to think hard about every purchase, which reduces waste.

Disadvantages of personal savings

• The amount is limited: you can only invest what you have saved, so a bigger idea may have to be made smaller — Ben's second-hand sander is one result of this.
• The owner's money is at risk: if the business does not attract enough customers, the money may never be recovered.
• Lost interest: money left in a savings account would have grown, so the owner gives up that return.
• No safety net: savings are often kept for emergencies, and using them means there is less to fall back on at home.