We get it. Raising capital is an essential part of growing and taking your business to the next level. You can start shipping your product, build partnerships and recruit top talent for your startup.
So why not just raise money?
Well, many entrepreneurs think that capital is the answer to their company’s needs. However, many times, funding might come in the way of your business and potentially hurt it.
Without finance, for example, you’re forced to keep lean, and you don’t have to worry about investors or board members meddling with your startup.
And that’s not all. Here are 5 logical reasons why your startup doesn’t need to raise capital.
1. You Already Got the Resources
If your business has been up and running for a while, it’s likely that you’ve already built up some assets and/or customers. If this is the case, then you may not need to raise capital at all. Instead, you can use your existing resources to grow your business further.
For example, if you already have an established customer base, then you could use that to launch new products or services. Similarly, if your product is already well-known in its niche market, then you may be able to get it into more stores without having to raise any money at all.
If you think you are just getting started, then crowdsourcing portals can help you evaluate your idea and raise funds without having to make a case to investors. A popular Kickstarter campaign, for example, will provide you with free publicity. This traction could lead to new users/customers.
2. You Don’t Need to Scale at the Moment
If you don’t need to raise capital, you don’t have to scale quickly. You can take your time and focus on building a sustainable business model that generates revenue without affecting your cash burn rate.
This is crucial for small businesses, which often struggle with cash flow and can get caught in the trap of raising capital to fund their growth.
Plus, in reality, premature scaling can kill your venture by causing you to go on spending binges and make not-so-wise mistakes that make your customers unhappy.
Related: 7 Tips to Manage Cash Flow to Grow Your Small Business
3. You Are Already Making Profits
This might be the most obvious one. If your company is profitable, then it doesn’t need additional funds right now. It just needs to be managed properly and grow at an appropriate rate.
For example, if you have $30 million in sales with no debt and a net profit of $4 million after taxes. Then there is no reason to raise capital unless there is another pressing matter that can only be solved by raising funds.
That could include an expansion of your product or service offerings or an investment in new technology systems that will help streamline operations or improve customer service. The key here is finding ways to improve efficiencies or increase sales without taking on additional debt or diluting ownership by issuing more shares of stock.
Related: How to Get Maximum Sales by Predicting Consumer Behavior
4. You Don’t Have a Venture Capital-backed Company
The first question you should ask yourself is whether your business idea is VC-backable, or if it has the potential to become so.
It’s important to know the difference between a scalable business model and one that requires significant capital investment from day one.
Most investors will not look at companies that aren’t scalable because they want to see maximum return on their investment. If you’re looking for funding for a startup that doesn’t have a scalable product or service, then you need to work with someone who is willing to put up the cash.
Related: 9 Solid Reasons Why Investors Won’t Invest in Your Startup
5. You Don’t Have an Exit Strategy
If you’re in business for the long haul, then it might make sense to go after some growth capital if you see an opportunity to expand quickly. But if you don’t have an exit strategy in place — such as an acquisition, merger, or IPO — then the additional investment is probably not the right move for you.
You don’t have a clear plan. Before investing in any company, investors want proof that their money will be well spent and that they will get their money back plus interest at some point down the road.
This requires transparency from management and a solid plan for how the money will be used to grow the business. Without this information, investors won’t feel comfortable putting their money into your company.
Summing Up
If a business isn’t growing, it just doesn’t need capital. It’s that simple. If a small business wants to raise outside money, the best and most logical use for those funds is growth.
Perhaps through developing or acquiring new products or services, or expanding into new markets. Raising money for any other reason is pointless.
The way a company should decide to raise capital is by first figuring out how it will be used before going in search of ready investors with open arms.
By thinking through this essential step, you can gain a better idea of how much raising capital makes sense for your business as well as how much you will realistically be able to use.
