Imagine you walked into your office tomorrow morning and, magically, an additional $10 million of cash had appeared in your company’s checking account.
What would you do with it?
Not borrowed money. No interest payments. No amortization. No maturity date. Just $10 million of permanent capital.
Would you buy a competitor? Pursue a customer you’ve always thought was too large? Or would you simply leave the money sitting there until the right opportunity came along?
Most successful business owners I meet don’t think they need capital.
Their business is profitable. They have a good relationship with their bank. They have been growing for years without outside investors. So when I ask whether additional capital would help their business, the answer is often some version of, “Not really.”
I think that’s the wrong question.
The better question is: What could you do differently if you had another $10 million on your balance sheet?
The specific answer isn’t the point. The point is that most owners suddenly have one.
Capital Constrained Doesn’t Mean Cash Strapped
There is an important distinction between being short of cash and being constrained by capital. A good business can have plenty of cash and still be capital constrained.
Owners naturally protect what they have built. If your company has $3 million sitting in the bank, investing $2 million in an opportunity feels very different than investing the same $2 million when the company has $13 million. The investment hasn’t changed. The company’s ability to absorb being wrong has. And that changes decision making. A stronger balance sheet doesn’t necessarily tell you what to do. It gives you more things you can do. That’s an important distinction.
Most successful owners have spent decades making decisions within the financial constraints of their businesses. They become very good at it. They grow out of cash flow. They preserve liquidity. They borrow prudently. They wait until the business can afford the next investment. There is nothing wrong with that. But eventually it becomes difficult to distinguish financial discipline from opportunities you have simply trained yourself not to consider.
$10 Million Isn’t Free
There is an obvious catch to my hypothetical. Permanent equity capital means giving up a piece of ownership. That’s a real cost. If you’ve spent 20 or 30 years building your company, giving up any ownership should be a serious decision. So I’m not suggesting every successful business should take outside capital. Far from it. I’m suggesting owners ask a different question.
Don’t start with: “Do I need the money?”
Start with: “What could I do with the money?”
Then decide whether those opportunities are worth the ownership you would give up to pursue them. Those are two very different conversations.
So, What Would You Do?
Imagine $10 million of permanent equity capital appeared on your company’s balance sheet tomorrow. What would you do differently if your company could afford to be wrong? There are a lot of possible answers. I’m going to explore several of them in the coming articles.
But before getting to any of those, I’d start with the question. If the answer is truly nothing, you probably don’t need the capital. But I suspect most good business owners could come up with a pretty interesting list.