Finance Learning Lab - Micro Course on Small Business Bookkeeping and Finance (Part 10 of 10)

Описание: Let's talk financing! So I think when it comes to financing, a lot of business owners fall into one of two camps. They either fall into the camp where they're not interested in doing financing and they plan on self-funding. They're going to bootstrap and fund more and more of their operations by generating more and more sales. So some go into this immediate blinders without realizing that if you pursued a very beneficial stream of debt or equity funding, you could actually go further faster. And then there's some businesses that I think go almost the opposite extreme where they become so deeply focused on raising capital and for some kind of tech and software service companies are going to go really really deep into the venture capital and angel investors and go so so deep into that world. Or some others in the more traditional brick and mortar business may become obsessed with going to every single lender and inquire about what kind of credit will be extended to them. They get so deeply entrenched in this path that, "I need capital to be able to grow my business", that it becomes a Catch-22 where they ultimately end up too focused on it and not sufficiently focused on actually growing a customer base, a revenue base and a profitable business now because they're so hung up on the need to get money to grow further and faster. So your scenario is probably going to depend deeply on where your natural bias is.

I do think most business owners have based on their own personality and their own DNA they're going to lean to one side or the other side of the spectrum. And it's really just important to always be looking at how you should open your array of options. So you want to be looking at things not as singular and not as the option of get VC funding or get nothing or get capital or pursue nothing. You want to put yourself in as resourceful of a state as you can and brainstorm an entire buffet of options. You might not like your entire buffet of options. No one said that you're going to love all of them and it's a reality that every business owner out there needs and wants more money and there is not going to be the money that everyone wants around there. So you've got to get scrappy and resourceful. But just know where your natural bias is and then know and put yourself in the shoes of the person that you're trying to get something from. What are they going to look at? So if you're the person that's not seeking any financing, your biggest risk is going to be opportunity cost. Because you're actually not knocking on those doors and you're going down your own path. If you're the person that's really trying to get capital, you need to put yourself in the shoes of the person that's going to give you money, whether that is loan or whether that is equity, and you want to think about what they are going to want to get in return. So if you're seeking equity, you're seeking an investor. An investor is typically going to want a 10x return. They're going to want to have some way of exiting the company. They're going to want to have some way of getting their money out over some time horizon. So you want to think about if that was the case and if I were to put myself in the shoes of the investor, well what would be the things that I would be looking at? What would be the the metrics? What would be the projections I want to have in there? What would be the valuations that I want to put in place for my company? What would be the items I could put in to mitigate any risk that they may see in their mind? What are the evidence of traction? Because why they want traction is to make sure that whatever that particular traction is, is going to be a good payout in the end.

Similarly, whenever you're looking more at that debt stream of funding and financing, you're going to want to look at it again, if you're someone that's loaning money what are they going to be worried about? Well they're going to be worried about not getting their money back at all. And that is slightly different. So where an equity investor wants to make sure they get a 10x, the debt investor is not worried about getting a 10x. They just want to get their own principal back plus whatever that interest is. And so they do tend to be a little bit more concerned with making sure that you have what we call collateral. And so this is why more traditional businesses often tend to go down the root of debt funding because you will have collateral in the form of land, the actual property, the actual building, the actual equipment, and the inventory. Because as the person doing the lending, you get yourself these warm feelings of saying, "You know what, if the business doesn't work out, I could at least salvage the property and it's still worth something".

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