Capital would fix your business… Or would it?

Is money the answer?

Every business could do with more funds it seems. The typical life of a business owner is one of juggling funds and prioritising who to pay.

This is true for business at almost any stage from startup to mature, and the issue tends to exist in times of growth as well as slumps.

It is often this need for cash that causes a business owner to see an investor as the answer to all their problems. However, cash may or may not be the answer. To be precise, additional cash will be the answer only when (lack of cash) is the cause of the problem, rather than a symptom.

In many cases, there are other underlying problems such as:

• wrong product
• wrong market
• wrong marketing
• wrong margins
• poor accounting and financial management

What will happen if you introduce cash into a company that has these problems is that the cash will simply accelerate whatever is happening. If the business is making money it will make more money. If the business is losing money, it will lose even more money. Cash simply becomes fuel on the fire. It can create fast growth, or it can create fast failure.

It is quite likely that if you seek capital, you will learn several things:

• The process of preparing your business for raising capital will highlight its flaws, and prompt you to fix them. For example if you lack KPIs in regards to your marketing you will be unlikely to present your offering succesfully to an investor.
• If you are unsuccessful in gaining capital, the reasons why not (if you are lucky enough to learn them) will help you improve your business as well as your next pitch.
• If you successfully secure capital, you can be sure that an investor will demand systems to allow them to see how things are running at any given time. Very few investors (other than family, friends, and fools) are likely to simply run things however you like.

So, don’t assume that capital will fix all your business problems (or take advantage of opportunities). If it is in trouble, decide if your business is worth fixing (not all are) and then decide if and how it is attractive to an outside investor.