Funding a Business >> Each section contains key Action Items located within the downloadable Action Guide >> Click to Download Action Guide.
1.1 Importance of capital
Cash is King!
As an entrepreneur, one of your most important tasks is to always manage your cash flow, so that you can forecast your cash needs on a weekly, monthly and yearly basis.
Capital investments take valuable time to secure and it is imperative to start looking for your investors well in advance of your financial needs.
Until your business is profitable, it will be necessary to raise working capital.
Capital, Funding and Financing
Many entrepreneurs fail to recognize that capital, funding and financing are all the same terms describing the money used to bring your business to profitability.
When searching for capital, understand the Golden Rule:
He or She, who has the gold, makes the rules.
You will learn firsthand that there are many different ways to fund your business with many different costs to do so. It is your responsibility to uncover the best funding solution(s) at the lowest cost in the shortest amount of time.
This lesson will provide numerous solutions for you to raise money at all levels for your company.
There are numerous challenges to funding any venture and the entrepreneur must accept the ongoing process throughout the lifecycle of the business.
Early stage companies are often challenged by finding the capital that they need. However, capital is always available provided your organization has a compelling business model and a strong team to bring your business to life.
Later stage companies are challenged by finding “low-cost” capital that does not require giving up major control in the company to new management, board members and directors.
Throughout the lifecycle of your company, there will be numerous occasions where you will weigh the cost of capital against what your organization will “give up” or exchange in return for the cash that will enable your company to grow or survive lean times.
Pay close attention! There are several lessons that could save you hundreds, thousands or perhaps even a million dollars in equity ownership preservation.
1.3 Definition of Debt and Equity
There are two main types of capital called Debt and Equity that enable businesses to grow through an injection of cash into the business.
Debt capital must be repaid to the individual or organization that has provided cash for the company to grow or survive.
You will learn that debt capital takes on many forms as shown in the downloadable Capital Comparison Chart and through the many lessons.
Equity, on the other hand, is given in return for capital that is invested in the company.
Equity is a form of ownership that can live on through the life of the company and depending on the structure, can be bought or sold at various stages in the lifecycle of the business.
1.4 Differences between Debt and Equity
Debt is usually provided on a “Term” basis in exchange for the capital supplied to the business. The terms are negotiated between the party supplying the capital and the business receiving the capital.
Debt will often carry a percentage of interest on the principal or capital supplied during the life of the loan, which can be profitable for the company loaning the money provided the original loan and interest is paid back accordingly.
The biggest question for investors and entrepreneurs is the value between providing “equity versus no equity” in exchange for the capital injection.
A business that does not have revenue and has not been “proven” in the marketplace must be treated differently by an investor than a business that has a solid track record and rapidly growing revenues.
This is where the idea of “collateral” or “something of real value” is provided in exchange for the capital supplied to the business if it fails. Collateral may include cash or investments, real estate, automobiles and other valuable items that provide security if the loan is not repaid.
Otherwise, the “placement of risk” is compensated by ownership or equity in the company that received the capital. Let’s examine the Capital Chart for further details.
1.5 Capital Comparison Chart
Download the Capital Comparison Chart.
The Capital Chart describes the many funding sources that will be covered in further depth throughout the rest of this Action Guide.
Review the chart to gain a general understanding of capital sources that can benefit you.
ACTION ITEMS: Complete the Action Items in your Action Guide.
REVIEW the downloadable Capital Chart to begin determining your potential funding options.
LIST your assets that could be used as collateral to secure capital:
DEFINE if you’re more interested in raising capital via debt or equity. Why?
LIST the five capital raising options from the Capital Chart that are most attractive to you: