The Money Podcast Why Raising Debt, Cash & Giving Equity Isn't Always Good
Nowadays, having debts or selling equity is the only seen choice to grow your start-up company or to get you out of financial turmoil. But, it isn’t always the best choice.
In this episode of The Money Podcast, Rob lays out the downsides of raising debt cash and equity if not done properly. Instead of growing the company through external financing, you might make a mistake and push your company down in a bad state. No one wants that! Discover from Rob what factors to consider and what strategies you could apply before going through a done deal. Remember: It’s okay to want to increase the value of your business but every decision should be well-thought and calculated.
KEY TAKEAWAYS
- Fund through cash flow. Sell some stuff. Put money in the bank and reinvest in your business processes (marketing, hiring, etc.) Selling out from the start just dilutes your equity.
- The downside of having money is that you have interests to pay. And, if you’re giving away equity, you deal with the shareholding. You’ll get the lowest share of the profits.
- Reduced shareholding. Raising cash and equity enables you to grow more so you want half of the pie. When you sell off the company, you have the half the sale value and all profits. Talk about managing salaries or how will everyone get paid.
- Small start-up businesses serve as a ‘self-function’ where they can put their expense through – underpay themselves. Or use it to pay yourself more than enough. BUT these won’t happen if you have external shareholders. They won’t agree with these kinds of activities.
- Reduced control. You can do whatever you want. You can make decisions for your business without outside influences. Don’t tag a better deal if the money is coming with a price – more control over you or no added value to your business.
- You have to be careful once you have the money and you feel like you have to spend it or invest it. Shareholders might be pressuring you to do so for growth but remember that you have to spend it in a calculated way.
- Make use of all assets besides money. You can be creative, resourceful, and adaptable especially if you’re in survival mode.
- Sometimes, giving away your shares could put you into a hostile takeover. There could be lawyers and VCs who can be assertive and may have talked you to borrow or sell unknowingly. Do your research before signing to avoid danger to your company.
- Companies might ask for earnouts that might not actually push through in the long run. It will be better to ask for cash out upfront.
BEST MOMENTS
- “When we need money, we don’t see the cost”
- “You can use cash to feel growth but you could [also] waste that cash. Because when you use cash to feel growth, what you don’t use is creativity, innovation, ingenuity, and leverage.”
- “When you start, you have to use all the assets you’ve got other than money.”
VALUABLE RESOURCES
- The Disruptive Entrepreneur Podcast ly/DisEntPodcast
ABOUT THE HOST
Rob Moore is an author of 9 business books, 5 UK bestsellers, holds 3 world records for public speaking, entrepreneur, property investor and property educator. Author of global bestseller “Life Leverage” Host of UK’s No.1 business podcast “The Disruptive Entrepreneur”
“If you don't risk anything, you risk everything”
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