What You Need To Know About Capital Raising

”If you wish to get rich, save what you get. A fool can earn money, but it takes a wise man to save and dispose of it to his own advantage”. Running a successful business is certainly rewarding, nevertheless great power comes with great challenges too, especially if entering a new growth phase. Whether it is investing in new technology, services, products or merging with another company, to ensure that your business plan stays on the right track, you need to raise capital. Having enough capital is key for your future success, so it’s crucial you understand the term capital raising and how to actually do it. If you want to play on the safe side, look for a company that offers advice services and strategies on capital raising so you can take your company to the next level. These companies have the knowledge to guide you in choosing the best option for raising your additional funding. Here are few things you should bear in mind.

capital-raisingBefore you start with your business, you will come across a lot of different pieces of advice and strategies. Some of them will claim that starting a business with little or no money in your bank account is possible, but remember – if it sounds like it is too good to be true, then probably it is. Therefore, to ensure success you need to have a thorough and detailed business plan. Executing a plan can be time-consuming but it certainly has its benefits:

  • You will have a realistic view on your capital needs for starting a business
  • You will get better understanding of the market
  • You will avoid costly mistakes in the future

Some of the most common sources of start-up capital for businesses are credit cards, loans from family members and home equity loans. But if for some reason these sources are exhausted you can seek capital from private sources like investment and commercial banks, venture capital funds, wealthy individuals and groups established by private investors. Their proposed investment is generally styled in the form of equity, debt or a combination of both.

  • Debt – This is the most common form of capital used by new business owners and it is secured by the assets of the company including the owner’s possible personal guarantee. As time goes by, your company will need to repay the principal with interest from your cash flow. If for some reason your company will not succeed in the world of business, the lenders will liquidate the assets for repayment, possibly seeking deficiency from you as an owner. Asset leaders are concerned only with the value of the assets in the market in order to ensure repayment.
  • Equity – When making use of equity, investors become owners of the company with the entrepreneur. The percent of ownership held by each investor is determined by a negotiation. Business valuation is not a science, it is an art where the conclusion is always subjective depending upon the perspective of the valuator. Entrepreneurs want as much as money as possible and as little equity, on the other hand, investors like quite the opposite. They want as much as equity but as little money as possible.

When it comes to capital raising there are plenty of complex things to consider. So be wise and play it safe – delaying capital infusions from third parties is always the best approach.

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