Inc.com | Forget VC Money, Fund Yourself

"The best possible way to finance your business is from free cash flow. If you can meet your capital needs without selling equity or without taking on personal debt, do it. It's that simple."

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Given the amount of attention venture capital gets, it's easy to assume that selling equity is the only, if not the best, way to raise capital. But the truth is, even if you one day do need to sell equity, put off that moment as long as possible.

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One VC I know used to ask prospective investees if they really felt they could afford to be an entrepreneur.

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That's partly a purely financial question; can you really cut your expenses to the point that you could drastically reduce, or even forego altogether, your salary. If not, are you sure that running your own business is right for you?

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Only borrow money (or allow take an investment) from friends and family if you're absolutely certain they can afford to lose it all and that doing so will not jeopardize your relationships.

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In the end, the best way to finance any business, and pay your bills, if - of course - out of cash flow. That is, make the business pay as it goes. Need to expand to take advantage of market conditions? Use your profits. If you don't have the profits, maybe you shouldn't be expanding.

Of course, that's a simplification. Many small business owners know that making a profit and receiving the cash that goes along with that profit are two different things. There are a number of ways to use your accounts receivables to smooth out the an unpredictable cash flow. Companies as diverse as American Express and UPS to your local bank all offer mechanisms that can help.

Only after you've explored all these options, should you consider venture capital. If you do, not only will you preserve more equity for yourself but you'll increase the likelihood of raising the money; after all, there's no company a VC likes to fund more than a company that doesn't need his money.

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Forget VC Money, Fund Yourself

Highlighted by omonad

Forget VC Money, Fund Yourself

Highlighted by omonad