8 Signs Your Business Doesn't Need to Raise Capital
Free Book Preview Money-Smart Solopreneur
Fundraising is vital for business owners. Without funding, it’s difficult to get your business off-and-running, along with helping it grow. On the flip side, sometimes funding can get in the way and actually hurt your business. For example, without funding your forced to stay lean and you don’t have to be concerned about investors or board members interfering with your business.
Either way, raising capital for your business deserves a lot of thought and attention. And, after some contemplation and crunching the numbers, you may realize that you actually don’t need to raise capital.
1. You don’t have a VC-backable business.
“Most founders feel like their ideas are amazing and worthy of an investment,” argues Alex Iskold in an Entrepreneur article. “The reality is that most ideas are worthy of some kind of investment, but not necessarily worthy of a venture investment.”
“Simply put, different businesses have different potential and because of that the amount of capital that makes sense to invest in them varies,” Iskold continues. “A small business, such as a restaurant, can get a bank loan, but it is not a great venture investment because the upside is typically small.”
In other words, if your business taps into a smaller market, or does not require a large amount of funding, then you may be able to secure alternative funding methods for your small business.
2. You already have the resources or traction.
In some cases, you may already have the resources to launch a business without needing to raise capital. While it would be great to start a business with a hefty inheritance, not all of us are that fortunate. However, we may have enough money in our savings to get the business off the ground.
Additionally, crowdfunding sites give us the chance to validate an idea and raise money without making a pitch to investors. And, a popular Kickstarter campaign, for example, can give you free publicity. That traction could lead to potential customers. That’s what Walnut Studiolo, a company that makes handmade leather goods, experienced back in 2012.
3. There’s no rush to scale.
While it’s important that you get your product or service to market as soon as possible, there’s also no need to grow too rapidly. In fact, premature scaling can kill your business since it can lead to you going on spending sprees and making clumsy errors that upset your customers.
As mentioned in the point above, you can grow your business and gain traction at a steady and healthy pace without ever having to raise any money from investors.
4. You’ve reached your milestones.
“Investors are looking to fund a company to a milestone,” writes Iskold in another Entrepreneur post. “And, in reality, there are two kinds of milestones for every company -- profitability and next round of funding.”
If you’ve already achieved these milestones, then there may not be a need for further investments since your idea has blossomed into a healthy business model that can sustain itself on its own.
5. You don’t have the time to mingle with investors.
No matter the stage, seeking funding is a time-consuming process. Between developing a financial plan, business model, building your pitch deck and finding the investors who would gel the best with your company’s culture can essentially take-up all of your time.
That means that you’re taking time away from tasks like product development, sales and marketing.
6. You have multiple sources of income.
Even if you’re making a comfortable salary as a business owner, or you’re trying to set aside money while at your current full-time gig, there are hundreds of ways for you to make several hundred dollars on the side.
For example, you could be a driver for Uber or Lyft and make a couple of hundred of bucks on the weekends. You could then take that money and put into your business. That may not sound like a lot, but adding $500 a month, if not more, can quickly add-up so that you don’t have to raise capital.
7. The business is turning a profit.
There’s no exact formula that will determine when your business will start turning a profit. The easiest way to determine this, according to Suzanne Kearns on Quickbooks, is “when your revenues exceed your expenses, you’re making a profit.” However, you don’t want to be barely surviving. You want to achieve corporate profitably, “which is when you have remaining capital after all expenses and salaries have been paid.”
Obviously, when you reach this point, there really isn’t a need to secure more capital.
8. It’s too distracting.
“Because fundraising is so distracting, a startup should either be in fundraising mode or not,” writes Paul Graham. “And when you do decide to raise money, you should focus your whole attention on it so you can get it done quickly and get back to work.”
If you would rather devote your time and resources to achieving other goals, such as acquiring and retaining customers, then you should definitely at least put the fundraising efforts on-hold.
(By Murray Newlands)