Money can solve a problem. The wrong money can create a bigger one.
Business owners often start with "How much money can I get?" I think there's a better question: what kind of money does this business actually need?
Not all capital is created equal. Think about medicine. You wouldn't take a prescription simply because someone offered it to you. You'd ask what it's designed to treat, what it costs, what the side effects are, and what happens if you take the wrong one.
You borrow money and pay it back with interest. It can work beautifully when your cash flow is predictable and the investment can comfortably support the payments. But debt doesn't care whether you had a good month. The payment still comes due.
Someone gives you capital in exchange for part of your company. There's no monthly loan payment, but there's another price: ownership. If you're building something capable of enormous growth, that trade may make sense. But don't give away a piece of tomorrow simply because you're short on cash today.
You receive money now and repay it from future revenue. That flexibility can be useful for the right business. But some versions — especially merchant cash advances — can become extraordinarily expensive. Fast money is often expensive money. The easier it is to get, the more carefully I want to understand why.
Sometimes the best money isn't borrowed or raised at all. Negotiate better vendor terms. Ask customers to prepay. Require deposits. Improve pricing. Use partnerships. Free cash that's already trapped inside the business.
Before you sell ownership or borrow from somebody else, look for the capital hiding inside your own operation.
Sometimes the most expensive capital is the one that looked cheapest when you desperately needed it.
Every form of capital comes with a price. Sometimes interest. Sometimes ownership. Sometimes control. Sometimes flexibility.
So before you accept your next loan, investor or financing offer, don't just ask "Can we get the money?" Ask what this money will require from us after we take it — and whether that price still fits the business you're trying to build. If the answer isn't clear, don't sign yet.
From Chapter 3 of The CFO Operating System — The Four Types of Capital.