Are You Financially Balanced?

Is your business growing? Or has it stagnated during these last few years due to the economic downturn? Like most of us who own their own business, going to the next level is always a big step: a step that takes more than just courage, optimism and a great concept.

It also takes money. Purse strings are tight, and to reach out and ask for financial help can be more than a little scary. The big question is what type of financial help you want—I mean, other than just asking for money. Are you open to giving up part ownership? What about paying interest on the money you receive?

The two means of financing available for your company are:

1. Debt Financing, which is when you borrow a set amount of money for a predetermined period of time and pay a predetermined interest; and
2. Equity Financing is receiving an injection of funding in exchange for an ownership stake. The percentage of ownership is based on the amount the investor is paying per share and how many shares he's purchasing.

But how do you determine which form of financing is right for you? Both of these financing options have advantages and disadvantages. Before we go any further, let me clearly state this: Your final decision, before doing anything, needs to be based on education and knowledge. Your specific business situation is unique to you and your financing options, no matter which path you choose. It is unique to you, and there are two professional resources you need to seek out and tap into before venturing into the wild world of financing. Those two resources are a CPA specializing in financial investment and associated tax laws, and a lawyer specializing in fundraising and associated state and federal business laws.

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Money Talks; Everything Else Walks

Recently in a conversation with an associate, we were discussing venture capital opportunities of the past and how we both have invested more than just money but also our time, dedication and expertise; and for a few of those investments we've wound up with some beautiful-looking ownership certificates that have no cash value but make great wall paper. When it comes to having the desire to move your business up in the world, expertise is nice but money is what ultimately pays the bills for those direct and hard costs associated with running your business. For individuals to invest their cold cash into your business, they need to believe that what they're investing in will provide a return, and their belief is ultimately based on your own belief, the trust you have in yourself and your business idea.

You possess an impressive business plan, you've worked on your business design, and you've finished a feasibility assessment that indicates your business has the makings for making huge money. Great! The only thing stopping you from taking the leap is your need of raising money.

In this economy, finding individuals to invest in a small business isn't the easiest thing. But don't lose hope; they are out there, and yes, they are willing. These individuals are best known as "Venture Capitalists" or "Angel Investors." Basically, VCs impart fiscal backing to a company or firm that is in its early stages but nevertheless exhibits high potential in terms of forthcoming growth and profitability: exactly where you seem to be finding yourself. Their goal? To make larger-than-typical profits (i.e., stock market investments) on their investments. Don't fool yourself: VCs are fully aware that a number of these types of investment projects can and will end up losing money. However, VCs recognize that great earnings from some of their projects will more than compensate for their losses along the way. Venture Capitalists are receptive to taking high-level risks when other people may not be.

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Financing and Funding: Venture Capital

You have a great business idea, have worked on the business blueprint and done a feasibility check, and have forecast that the business possesses enormous potential for making large profits! In short, everything is in place and the only thing stopping you from taking the plunge is lack of avenues for raising funds.

To provide financial support to such business firms and promising entrepreneurial abilities, the concept of venture capital emerged. Venture Capital is a significant source of finance for those small and mid-sized firms in their early-stages that nevertheless exhibit high potential in terms of future growth and profitability.

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