If you’re planning on starting a business, chances are you’ll need some form of capital, which simply refers to the money that finances your business, or business funding for startups.
One reason for the failure of many small businesses is that they undercapitalize their business. Therefore, it is important that you know how much money you will actually need to start and to run your business until you reach your break-even point—the point when your sales revenue equals your total expenses.
- How much money is required to start this business?
- How much of your own money do you have for this business?
- Do you already own any of the assets needed to start this business?
- Do you have family, friends, acquaintances, or others who are willing and able to invest in this business?
- Do you have a strong personal credit rating or lines of credit available?
Equity means ownership. With equity investment, an investor makes money available for use in exchange for an ownership share in the business. If you use equity investment, be sure to consider how much ownership you’re willing to give up, and at what price. Once you sell 51 percent of your shares, you lose control of your company.
Equity investment includes any money from individuals, including yourself, or other companies in your business. This money may be from personal savings, inheritance, personal loans, friends or relatives, business partners, or stockholders. These funds are not secured on any of your business assets.
But, before going down this road, it is important to know the .laws that apply to any company or other entity that raises money from investors.