Five Things To Consider When Deciding On a Business For You. - Part 4A

Where's the money? How is this going to be funded?

September 10th, 2024

E D I T O R I A L

Every Monday, I’ve asked my friend, DR Rawson, to focus on business related to our focus, empowerment. Over the next few weeks, we’ll look at business from a different perspective, his.

I truly enjoy these business tip series from DR sharing his knowledge and experience with us. I hope you will learn from him and ask many questions; he has a lot of wisdom to share.

If you have a question you would like him to address in the future, please leave it in the comments.

Thanks for reading,

Dr. Gabriella Kőrösi - Managing Editor

Funding - Part 4A

4. How much money will you need, and where will the funding come from?

Here’s where it gets very real

You’ve thought it through, the preceding three steps made sense, you made some decisions, and there’s just one more thing to figure out. Where’s the funding coming from?

1. OPM - Other People’s Money, usually a significant other, parents, and relatives.

2. Out-of-pocket - Your bank accounts, cash on hand, and credit cards in your name. Remember, when this resource is used and dry, there’s typically no more to be found, and you’ll need to resort to another resource or fail.

There are four areas of funding to discuss. We’ll cover the first two this week.

Personal Story

My first business was wholly paid for with OPM. They built the warehouse, stocked it, gave me the money to hire people, paid my rent and utilities, provided a car with a mobile phone, and paid ALL business expenses.

I was to start repaying them at the end of my second year. I sold the business after fourteen months. That’s a story for another time.

I knew nothing about business except how to manage people (thank you, USAF), and I could sell (anything to anybody that needed something). I was great at finding where problems existed and understanding how what I needed to do to solve their problem.

My Second Business

By the time I was ready to go into my second business, I just bought it. It was classic number two above. I financed the whole existing venture that was already positive cash flowing. My entire investment was returned in just over six months. When I bought the business, it was doing around 75K a month and barely making money. At six months, we were consistently earning more than 250K a month (1970), and by the time I had owned it a year, we were grossing more than 1M per month.

OPM can be the way to go but ask yourself this. If the business does poorly or it fails, will it damage your relationships? If so, I wouldn’t use OPM.

$1000

I’ve started some businesses with $1,000 or less. It’s called the pay-as-you-go method. When you’re funding out of pocket, it’s not a bad way to go. You’re also intentionally limiting yourself to the amount spent. Solid plan.

Often, people who put thousands into their business wind up misspending it simply because they have it. It’s easy to justify. It doesn’t advance your business or get you any closer to the successful (profitable) business you intended.

Percent of Ownership

When you take money in exchange for stock or a share of the company, there are a few things to be aware of:

1. It’s 2024; do not do a handshake agreement, even with your mom. Always think about how it will blow up before you get into the circumstance if you don’t win.

2. Never give over 48% of your company to someone in exchange for money or services (sweat equity). I’m not trying to be Captain Obvious but remember that once you exchange 48% for cash or services, you can’t go back.

Call to Action

About now is when it’s wise to bring in an attorney or CPA to advise and help you. Asking for help may be the smartest move you can make.

Until next time…