How Raising Capital Impacts Your Financial Statements
Businesses need money to operate and unless your business has retained some earnings to draw from, you might need to go out and raise capital. Although there are complexities that blur the lines, you can broadly think of all capital as falling into two categories:
- Loan-based funding
- Ownership-based funding
Loan-based funding includes borrowing money from the bank or offering a bond or promissory note to private lenders. Ownership-based funding is essentially where you sell a piece of the ownership in the company as a share or stock. You’re probably already familiar with these concepts. But what I want to talk about in this blog post is how each type of funding impacts your financial statements. Knowing this will help inform you about the best choice for your situation when it comes time to raise some capital.
Tags: Balance Sheet, Best Choice, Borrowing Money, Cash Flow Statement, Complexities, Creditor, Debt Repayment, Dividends, Financial Statements, Income Statement, Liabilities, Liability Side, Net Profit, Operating Expenses, Private Lenders, Proceeds, Promissory Note, Selling Shares, Share Issues, Shareholders
