Financial capital for entrepreneurs comes in different forms. For SMEs, deciding between debt and equity funding can be a difficult task, the former retains control and ownership yet creates a serious obligation which if not met can result in serious damage to brand and property, the latter dilutes ownership, yet creates equal responsibility and accountability to ensure the entity continues as a going concern.
By Chad Mhako
I have discovered that a lot of entrepreneurs are in a haste to get funding, but is it really the first thing one ought to be thinking about? If so what issues does one need to consider before going out there looking for money? It requires prudence to 1. Determine whether extra capital is really needed 2. Decide which of the two to choose between debt and equity 3. Whether the project is really worth the paper it’s written on.
- Are you prepared to lose someone else’s money?
Losing your money is a learning curve, losing someone’s money is debt. When you acquire funds remember you will still need to repay them. It is prudent to ensure that when the money is received, it goes directly into the activities for which it has been borrowed for, every cent must sweat for the business.
- Have you experimented?
Some entrepreneurs as soon as they get a spark of an idea in their head, they immediately want third party finance. The world is never short of ideas, but not all ideas are bankable, let alone profitable. Do not trust yourself with a ten thousand dollar loan if you can’t trust yourself with a hundred dollar transaction.
- Has your company reached its true value?
A million dollar idea is worth half a penny until executed. This is often true for most small businesses with big intent. A multi million dollar business requires the right partnerships to enable it to unlock its true value. Most entrepreneurs who do not succeed are concerned more about ownership than creating synergies that unlock progress. A prudent entrepreneur, is not only one who opens doors for partnerships, but one who considers the nature of the partnership. In choosing your business funding model, prudence must be exercised. An idea has limited value; work in progress carries more value than an idea. It’s easier to make more out of work in progress than just a mere idea. Thus its more prudent to solicit extra capital once you have laid out a working plan and probably done something to show your worth.
- Are you ready for supervision?
Funding can ensure your business succeeds, yet if not applied correctly, can result in your vision being crippled. Imagine getting an angel investor who has limited insight into what you are actually trying to achieve or one who wants to achieve a different purpose that may result in the dilution of your purpose and goals. A third party can give you a better view of things, a bird’s eyeview of things which may work to the advantage of the project or they can completely miss the concept and arguments ensue over which course to take.
- Have you made any money on paper yet?
Recklessly going out there looking for funding is like going into a dangerous work zone without protective clothing. One of the easiest ways to start making money is making it on paper. Project documents not only serve to give u access to funding or opportunities, they help you rationalize your vision, mission, assess feasibility of project. Most entrepreneurs who fail, delegate the responsibility of coming up with a solid project document to some other quick project writers. Whilst writing a project or business plan requires skill, it is essential for the visionary to lay his own plan and have an expert rationalize it. You may agree with me that a lot of young people who accessed the youth loans, did so using template plans, which then fell short on execution.
- Are you looking for a quick fix?
If you are looking for a quick fix, then you probably need to slow down. There are no guarantees out there. It’s easy to make loses, profits come with hard work. Timing is key, you can make the nicest typewriters in this generation, and put all the hard work in selling yet the market has long shifted to computers and other smart gadgets. Genuine entrepreneurship is not quick microwave operation it entails oven backing your solution to a problem that is out there. No wonder why there is no single particular business that delivers the same return to all players. Some make billions from a dollar per client business, some fail to make half that from a million per client business. The quick fix mentality is for unsustainable and probably illegal deals/transactions. Businesses that last the mile have solid foundations thats why they exist beyond the creator of the business.
Being an entrepreneur means being able to act on your dreams even when there is no guaranteed return, being able to look beyond uncertainties, being a calculative risk taker, most of all not quitting. However not everyone is prepared to share your risk, people have expectations which may run contrary to your desired path, or even add value to your business perspective. Be clear of your goals, be certain of your business model, subject it to various stress tests, critique in a way that does not sow doubt in your mind. Once subjected to this refining process then and only then should you consider getting additional capital.