Maybe you’ve heard that you should never take venture capital money. Or perhaps getting outside funding is your definition of success. Either way, I’m breaking down the various options for growing your business via funding, and explaining why it’s not a simple black and white issue.
Today’s episode falls under the pillars of Financial Acumen and Business Acumen. For an overview of the 6 Pillars of Corporate Structure for Growth, listen to episode 3.
There are different ways to grow your business, scale it, and fund it. Credit is the biggest part of the economy, and it’s not wrong to use this to your advantage as a business owner.
To help you understand your options for funding, I’m breaking down some key terms that are often thrown around.
Equity is the difference between the value of the assets less the liabilities.
Private equity simply means that the company is privately owned. If someone wanted to invest in a privately owned company, they would be investing in private equity.
Ways you can fund your business growth:
Typically, private equity takes place with an existing, more established business. Venture capital is not thought of as the same as private equity. I share the way that classic private equity works and provide some examples of this.
Some entrepreneurs think that taking in funding is wrong, and others are celebrating when they receive funding as the pinnacle of success.
For some companies, it is a great thing to get funding and for others, it doesn’t make sense. But it’s important to understand how this works and the value of it.
In business, you need to think about the long game.
“Making a blanket statement that taking venture capital money is always a mistake might not be correct.”
It’s important to understand the pros and cons and to know your industry.
Let’s talk about other funding options.
Some businesses don’t want to take on loans because there may be outside input into how the business is being run.
Reinvest capital into your business
Another option is to simply lower the amount of cash you take out of the business for personal purposes and instead invest that money into the business.
Pre-selling – this allows the company to make sure they have the cash to manufacture the product before it’s even made. An example of pre-selling is amusement parks that sell season passes before the park is even open for the season.
If you get paid after your services are provided, you know you have funds coming to you within a certain amount of time. In this case, a lender may give the business owner an advance against his accounts receivables (i.e. factoring).
Why Funding Options Are Important
Being open to learning about various funding options is an important business concept.
“Funding can come in different shapes and sizes.”
It’s important to recognize that how you run your personal budget is not the same as how you run your business.
The purpose of business debt is to create more production and income for the company.
I hope this episode has helped you expand your understanding funding options for business growth and make more informed decisions regarding these options moving forward.
Connect with me: