The other day I got an inquiry from my home page. I gave a quick phone call to follow up. The people, an impending partnership, wanted to find an investor in order to obtain a substantial amount of money to buy a building, in which, they were going to be a start up business.
I have worked with a number of start up businesses and can tell you that the two reasons why businesses fail most often are: 1. lack of capital & 2. lack of managerial expertise.
Taking on an investor has its whole range of problems including loss of control of the business entity. Using invested money to create a Balance Sheet (of no value to the partners) is not a sound start up principle. Taking on long term or permanent debt at the outset rather than concentrating on dealing with short term debt is another pitfall. Then, there is the problem of the size of the building. In two years, for example, if the business takes off, the building is too small. Now it has to be unloaded.
A start up company should run as lean as possible and concentrate on having only short term debt to keep the problems to a minimum. Taking on long term debt before you understand its complexities can become a long term disaster. You have to ask yourself the question, "what is the cost of my education in becoming a businessperson?".
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