QUESTION on How to Finance a Business:
I have been thinking of the right approach for my business. I am wondering if it is advisable that I start the business now using investor’s money (I have nothing to give as capital), or would be it better to wait until I have enough money myself? Thanks.
– Adam (Orlando, Florida)
ANSWER by Isabel Isidro
Ask yourself the question: do you like to be a big fish in a small pond, or be a small fish in a big pond? It all depends on your vision for your business and your personal goals.
Some wants to see their “baby” grow into a big business, and they know that they can only achieve growth in the record speed they want with the infusion of cash and assets from other investors. They’re willing to share the pie, because they know that it is an increasing pie. Plus, they recognize that adding more people to the team allows them to focus on what they know best, and let others contribute their talents to the team effort.
Others, on the other hand, just want to keep things on a smaller or even personal scale. They have no big ambitions for their business, only that it provides for their needs, plus some extras. They are more willing to take things slower, bidding their time until it grows. They also would rather have total control of the business, instead of sharing the decision making process. Or they may be more of a lifestyle entrepreneur, where the business is simply a means for them to achieve the lifestyle they want.
There is no right or wrong approach – it simply is a matter of making a personal choice and your strategies on how to approach the business. Some are better off using their own capital; while others succeed using investor’s money.
An important question to ask is which approach will the gains be more beneficial (though of course, it still depends on how you define “gains”)?
If your goal is to have a bigger profit, then a business that grows into a $50 million business in 5 years where you own 10% may give you higher financial returns than a business that you were only able to grow into a business with $100,000 profit. In a big corporation with investors, even founders can be booted out if they think you are a liability to the business; in a small business, you can fail because you may not have the right skills to grow the business.
Either way, there are risks and gains; what you take will depend on your tolerance for risk and your personal objectives
Recommended Books on How to Finance a Business:
- Financing Your Small Business: From SBA Loans and Credit Cards to Common Stock and Partnership Interests (Quick Start Your Business)
- How to Get the Financing for Your New Small Business: Innovative Solutions from the Experts Who Do It Every Day
- Raising Venture Capital for the Serious Entrepreneur
- Angel Financing for Entrepreneurs: Early-Stage Funding for Long-Term Success
Article originally published January 6, 2006. Updated January 20, 2012
- Evaluating Financing Options for Your Business: Myths and Facts
- Pros and Cons of Financing a Business
- Book: The Last Chance Millionaire
- How to Raise Money to Finance a Franchise
- 12-Step Template to Write an Effective Sales Letter