Investors

Here’s why the best decision is to invest additional capital into the company. If production is doubled from 1,000 to 2,000 widgets per month, the company’s monthly gross profit will increase to $10,000 (2,000 units @ $5 profit per unit). However the fixed costs ($3,500) would remain the same. Therefore, the company’s net profit will increase from $1,500 per month to $6,500 per month. That’s a whopping increase of 433%. Now you see why it often pays to expand!

We know you are going to need additional capital sometime in the early growth stage. How should you obtain it? Most likely, the banks still won’t be interested because the business is too young and there is no long-term track record of success. On the other hand, private investors (sometimes known as “angel” investors) are often attracted to a company in early stages of growth.

One of the biggest questions you will have to answer now is: What percentage of the business am I willing to offer an investor? It is important to consider this carefully, because each time you need financing the investor is going to want additional shares of ownership. You stand to make a lot more money, but you will have to share that money with someone else.

In addition to the cash infusion, the right private investor can provide expertise in management, important business contacts, and the opportunity to grow the company into something bigger than you could ever achieve alone. This is a big decision, and it should be considered from the beginning of your business, written into your business plan, and prepared for in advance. If you get financing at the right time, your business may then enter the steady growth stage.