What are the 3 most important things entrepreneurs need to know about raising capital? Great question.
First, let’s be honest — the entrepreneurial types often aren’t great when it comes to finances. Blame it on their creative brain that tends to live on the side of chaos, but finances are historically tough for entrepreneurs to nail down. So, if you’re looking for a bit of wisdom on managing finances as you strike out on your own, below is some info that may very well help you start off on the right foot.
Seeking Outside Financing May Not Be Worth Your Time
Very few businesses actually obtain money from the outside. So, short of an unforeseen angel investor or a business that can leverage a lot of hard assets to be used as collateral for a loan, you’re better off finding that money from the inside. Your best bet here (most of the time) is to craft a less capital-intensive business model — something that you and your business partners (if you have them) can finance yourself.
This is an especially helpful tip for people looking to start their own business a few years down the road. Personal credit is huge and extremely important when looking to start a business. If your personal credit is poor and you don’t have a lot of assets to leverage for a loan, you’re going to have a hard time borrowing to finance your new business, no matter how great or innovative an idea may be.
This is another great example of starting with what you can directly control. Make sure you have your house in order, so to speak, before you venture off and try to start your own business. If things are looking good on the home front, then you’ll have a much better chance of expanding and working on that business idea without your own personal finance history getting in the way.
Ever since Silicon Valley sold us the sexy notions of angel investors and venture capital, bank loans and trade credits are seen as passé. But the truth is, a lot of companies that get outside financing obtain debt, not equity. This harkens back to the first point a bit, but unless your business is the type to attract angels and venture capitalists, you probably shouldn’t spend so much time seeking equity investors and should allocate your resources towards focusing on getting that loan.
In short, unless your business model is one of high-growth and one that stands a good chance of attracting investors and venture capitalists, it’s probably best to try and finance the endeavor yourself, minimize your capital needs, and borrow any money you need personally.