27 December, 2013

1-5-18 finance: Financing

For businesses that need A LOT of money that you don't have, you need to get capitals
But funding comes with a price. Financing is not just a financial transaction. It is kind of a double-edged sword. It makes you achieve things that you couldn’t have been able to do without it. But in the same time you have now interests over your shoulders, you may lose control over your business, sell your business or be kicked out of it.

The more money you get, the more you will have to give away in exchange of that amount of money  

There is a certain hierarchy of funding:

-          You pay for the entire business in cash.
-          You pay for it via credit card.
In these two cases, you have total ownership and control over your business

-          You go to a bank to get small uncollateralized loan (the bank will not collect anything from you if you couldn't payback)
-          For larger amounts of money, the loan will be collateralized
The more money you ask for, the more value of collateral the bank will ask for

-          Another kind of collaterals with larger loans, receivables: the bank will have control over the people who owe you money and has the right to collect the money from them

-          Individual investors: now we go to the ownership giving-away side.
You will have to give away a part of your business ownership to them.
Yet with small amounts of money, they will be partial, silent owners without any kind of managerial decisions
-          Venture capitals: very large amount of money that you will get. The more you will accept, the more control they will have over your business

-          Note: giving away a part of your business ownership for someone very important for your business who will add a GREAT value and reputation to the business 

-          Taking the company to the stock market will be a great shift for your business.

Selling a part of the share to the stock market and making your company public is a very good way to get money. But don’t get immersed in SHOWING that you are doing good (in the quarters' reports and stuff) than actually DOING or developing anything

But always remember:

-          DO NOT accept finance of any type for things you can do for yourself.
-          Seek finance when you are sure it will be a force multiplier, and for things you cannot do without financing