Is Funding Right For You?
Now that your business has a neat, little operation set up, you’re asking yourself the age-old question, “Should I expand? Should I scale? Do I need more money?”
Unfortunately, it’s quite difficult to grow as a company unless you have the capital and resources to support such growth while maintaining quality standards -- which is why many business owners look to funding as a potential solution.
As soon as you start looking for funding, however, things can quickly enter the legal arena. Before you start networking and calling your connections, consider if funding is even the best option for your company’s growth.
Do you want to give up equity?
Not fond of the idea that someone else gets a say in how you run your company? If not, look into crowdfunding or debt.
Crowdfunding is an especially effective option for female business owners. According to research, women are seen as more trustworthy and more likely to receive crowdfunding than men.
Debt is a word that scares a lot of business owners, but Harvard Business Review claims that equity is actually riskier than debt. For starters, the government encourages businesses to assume debt since you can deduct the interest on your debt from corporate income taxes.
A company also isn’t legally tied to pay dividends to common shareholders based on equity, but a business is legally required to pay their investors a certain amount of return on their debt. This makes debt a lower-risk guarantee of return for potential investors, making debt look especially attractive.
Is it too soon?
Even if you’re itching for a stronger cash flow, there can be cons to raising money too soon. If you can raise a higher valuation for your company, you are in a stronger position to give away less of your company. Slow and steady wins the race, so focus on increasing your profits before you reach out to others for funding.
Is your company prepared?
Once you’re about to bring investors into your fold, set your company up for success before you start accepting any of that cash. No matter how small your business is, it needs to follow certain laws and regulations to ensure that your business is compliant with standard funding procedures.
It’s easy to turn to funding as the only way to generate capital after you’ve heard the millionth story of how that one unicorn startup managed to secure millions of dollars from top-notch VC firms.
However, if funding poses more trouble than it’s worth, there are still plenty of options to explore when it comes to securing capital.