A company’s capital refers to the money it has received from its owners, third party investors, or stock-holders. This money is provided as a method of fuel for the company. Many company owners have a lot of great ideas on how they can successfully grow their companies and thus their profits, but they may not always have the necessary funds to execute those ideas. This is where capital comes in.
Some owners are lucky enough to have their own funding sources to use – such as property they can liquidate, or a large savings account, or even an IRA or a 401k. Others may find that they will need the assistance of third party investors. There are private investors, who will offer up necessary capital in exchange for partial ownership of the company and a guaranteed piece (usually a percentage) of the company’s subsequent earnings. Then there are private partners, who are similar to lenders in that they provide funds for use as capital, but instead of partial ownership and a percentage of future earnings, they want re-payment, complete with interest (usually the payments are made quarterly or annually). Finally, there is the old-fashioned loan: companies in need of funds can take out small business or asset based loans, or the owner can seek out a personal loan, in order to scrape together the necessary funds.
All three funding options for capital have advantages and disadvantages. If you don’t mind giving up a piece of your company to someone else, and you’d rather give a percentage of future revenue for the rest of your company’s life instead of paying back a standard loan, then seeking out a private investor is a good choice. If you’d rather retain full ownership of your company and not have to give up a portion of all future earnings, then you’d be better off looking for a silent partner, and dealing with the short re-payment term. But if neither of these work out for you, and you don’t have your own funds to use, the only viable option is obtain a loan.
But before you seek out capital for your company, you need to take a hard, honest look at your company in its current state, and assess whether or not it will truly grow with the use of capital. Some companies are failing for a reason, and they should be put out of their misery kindly, rather than pumping funds into them that may work in the short-term, but definitely won’t work in the long-term.
If you’re not sure where to start with capitalizing your company, or if you even should, consider hiring experts that specializes exclusively in investments and capital. An example is COO John Ferraro, Ernst and Young. This company as well as many others will work hard to help you spend your money wisely, and build your company in a smart manner. If you’re having doubts about the future of your company, and whether or not you should even risk finding additional funds for it, meeting with a private funding and business analyzing firm can really help you determine what is ultimately the best choice to make.
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