Cost of Money
Not All Money is Created Equal
The most important lesson I can impart to you is the fact that all money is NOT created equal. As you look at sources of capital for your business you need to consider these six areas
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Debt/Equity – Any capital that you receive is either going to be debt or equity. Equity requires the surrendering of ownership. You need to be clear on what type of money you are obtaining. For the most part, banks and business deal in debt, investors deal with equity. Equity gives the investor a percentage of future profits. So while it may feel like free money, this is the most expensive capital you can get for your business (if you are successful!).
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Control – Does the money reduce your control? Bringing on investors or partners will lesson your control. A lender may request financial oversight or independent audits. You need to be aware of what you are giving up.
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Security – How is the lender or investor securing the money? Are you personally guaranteeing it? Is there a blanket lien on your assets? If you default who are they going after for repayment?
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Transferability – Can you transfer the capital to the next business owner? In other words, is the capital for you or is it for the business? It won’t do you much good to sell a business if all the working capital is still tied to you.
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Ease of Attainment – How easy is it to get? How much time will you need to invest in order to secure the capital that you need?
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