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Monday, 8 June 2009

When Is It Time to Get Capital?

Raising capital is an inevitable facet of small business ownership. Many owners spend a lot of time thinking about how they will go about raising capital, but neglect thinking about when they will need to do it. That's a mistake, because knowing when to raise capital (and when not to raise capital) is just as important as knowing the sources from which it will come.

Before Startup
In some ways, businesses are like children — both have distinct stages of life ranging from infancy to old age. Just as babies need food to grow, at various points your business will require a "feeding" — an influx of capital — if it is to mature and reach its full potential.

One of the most important stages of your business' development occurs during startup. Capital goes out quickly during startup as the business is supplied with the necessary equipment, inventory, and other resources. Unfortunately, many businesses never make it past the startup stage simply because they were launched without the capital they needed to succeed.

Learn from their mistake. Don't even think about launching your business until you are sure you have raised enough capital to fully resource your fledgling company.

Before an Expansion
Another important time to raise capital for your business occurs when you are preparing to expand. Depending on the scope of your expansion, you may need to add staff, equipment, or possibly even an additional location. Expansion can be exciting, but it can also be expensive — especially if you haven’t planned ahead.

Raising capital should be a part of an overall expansion that is drafted well in advance of the expansion itself. Consider how much capital you'll need and what you'll need to do to get it. If you plan on financing the expansion with a loan, you may want to sit down with a bank representative during the planning process to determine what you will need to do to qualify for a loan when it comes time to expand the business.

In Response to Market Factors
Even if you are not planning on expanding your business, you need to be prepared to raise capital to respond to sudden changes in the marketplace. For example, let's say your company produces a certain type of chemical for use in lawn maintenance. You make it better than anyone else and it's all you do. Then suddenly, your state legislature passes a law making it illegal to use your chemical on lawns or anything else in your state. Now what are you going to do? You're going to retool, and that's going to take capital.

You can't plan for every contingency. You may never be forced to respond to sudden changes in the marketplace or anything else that will require you to raise capital quickly. Even so, a contingency capital plan is smart business. You'll sleep a little better knowing that you have it if you need it.

reference: website


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