Mighty Digits on LinkedIn: Debt vs Equity Both can fund your business But each mean something… (2024)

Great insights! One of the hardest decisions to make in my opinion. Another key factor in decision making about deciding between debt and equity is the impact the debt will have on your debt equity ratio, which will affect the decision for future potential investors. To elaborate, a debt today because the entrepreneur is confident about his product, may backfire if the finance cost mounts up without really jacking up revenue. This means for a future investor, the return on equity may not seem worth the risk. I think one of the more important things to remember is to have a primary usage policy for funds on debt especially if you have been bootstrapped until now.

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Debt vs Equity

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Debt vs Equity......what to understand

Debt vs EquityBoth can fund your businessBut each mean something completely different from the otherLet’s start with some definitions…➡️ What does it mean to raise Debt?Raising debt means you received money with the expectation that you will pay back the amount, almost often with interestIt is a liability (since it’s something you owe to a creditor)and is CAPPED…that is, there is an exact amount that you owe➡️ What does it mean to raise Equity?Raising equity is when you receive money, but this time in exchange for ownership in your companyThis means that you have a type of liability to the new owner, but this time it’s UNCAPPED…as it involves giving a share of the profit & loss / sale of the company awayThis would show up in the Owner’s Equity section of your balance sheet➡️ What are the Pros & Cons of raising debt?Raising debt can be a great way to inject capital into your business if you are comfortable with repaying the amounts with interestBusiness owners who are bullish on the future of their business may have no problem raising debt, since they feel confident they will be able to use that capital to generate an even stronger return than what they will pay in interestThe cost of the interest + the schedule in which you agree to repay the loan however may catch up with you, leaving you in a difficult position if things don’t go as planned➡️ What are the Pros and Cons of raising equity?Raising equity can often times be a great way to raise capital without having to repay the amounts…let alone the lack of interest paymentsOften times an equity owner will also be a proud contributor to the management of the company, yielding the company both with capital as well as expertiseIt can come at a steep cost however, as you no longer have as big of a pie to share in the profitsEquity owners may also get voting rights, ultimately controlling the direction of the company...which can cause problems if you are not aligned➡️ When should you raise debt, and when should you raise equity?While every business is subjective, our 2 cents are:Raise debt when you feel confident that you have a proven formula for generating a large ROI with the capital, and the interest is lowRaise equity when you feel there is a fair valuation for the company, and you are aligned with the person who wants to become an equity holder in your businessThat’s our take on raising debt vs equityWhat would you add?PS: Looking for an expert to help guide you on raising debt vs equity? We can help you with that and much more..Learn more over here: https://bit.ly/47dbyWR

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Equity & Debt

debt vs equity

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Good analogy of Equity and DebtI believe both are important depending with what the business goals are.

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Debt vs EquityBoth can fund your businessBut each mean something completely different from the otherLet’s start with some definitions…➡️ What does it mean to raise Debt?Raising debt means you received money with the expectation that you will pay back the amount, almost often with interestIt is a liability (since it’s something you owe to a creditor)and is CAPPED…that is, there is an exact amount that you owe➡️ What does it mean to raise Equity?Raising equity is when you receive money, but this time in exchange for ownership in your companyThis means that you have a type of liability to the new owner, but this time it’s UNCAPPED…as it involves giving a share of the profit & loss / sale of the company awayThis would show up in the Owner’s Equity section of your balance sheet➡️ What are the Pros & Cons of raising debt?Raising debt can be a great way to inject capital into your business if you are comfortable with repaying the amounts with interestBusiness owners who are bullish on the future of their business may have no problem raising debt, since they feel confident they will be able to use that capital to generate an even stronger return than what they will pay in interestThe cost of the interest + the schedule in which you agree to repay the loan however may catch up with you, leaving you in a difficult position if things don’t go as planned➡️ What are the Pros and Cons of raising equity?Raising equity can often times be a great way to raise capital without having to repay the amounts…let alone the lack of interest paymentsOften times an equity owner will also be a proud contributor to the management of the company, yielding the company both with capital as well as expertiseIt can come at a steep cost however, as you no longer have as big of a pie to share in the profitsEquity owners may also get voting rights, ultimately controlling the direction of the company, which can cause problems if you are not aligned➡️ When should you raise debt, and when should you raise equity?While every business is subjective, my 2 cents are:Raise debt when you feel confident that you have a proven formula for generating a large ROI with the capital, and the interest is lowRaise equity when you feel there is a fair valuation for the company, and you are aligned with the person who wants to become an equity holder in your businessThat’s my take on raising debt vs equityWhat would you add?Let us know by joining in on the conversation in the comments below 👇

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To own any assets you have many way , either liabilities or equity or both everyone know it but the gap that some people drop in it , it’s liquidity, so if you want to Skip it you have to focus on (Current Ratio): {Current Ratio equals current assets/ current liabilities}-This ratio measure a company's liquidity or ability to pay off short-term debts.

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Debt vs EquityBoth can fund your businessBut each mean something completely different from the otherLet’s start with some definitions…➡️ What does it mean to raise Debt?Raising debt means you received money with the expectation that you will pay back the amount, almost often with interestIt is a liability (since it’s something you owe to a creditor)and is CAPPED…that is, there is an exact amount that you owe➡️ What does it mean to raise Equity?Raising equity is when you receive money, but this time in exchange for ownership in your companyThis means that you have a type of liability to the new owner, but this time it’s UNCAPPED…as it involves giving a share of the profit & loss / sale of the company awayThis would show up in the Owner’s Equity section of your balance sheet➡️ What are the Pros & Cons of raising debt?Raising debt can be a great way to inject capital into your business if you are comfortable with repaying the amounts with interestBusiness owners who are bullish on the future of their business may have no problem raising debt, since they feel confident they will be able to use that capital to generate an even stronger return than what they will pay in interestThe cost of the interest + the schedule in which you agree to repay the loan however may catch up with you, leaving you in a difficult position if things don’t go as planned➡️ What are the Pros and Cons of raising equity?Raising equity can often times be a great way to raise capital without having to repay the amounts…let alone the lack of interest paymentsOften times an equity owner will also be a proud contributor to the management of the company, yielding the company both with capital as well as expertiseIt can come at a steep cost however, as you no longer have as big of a pie to share in the profitsEquity owners may also get voting rights, ultimately controlling the direction of the company, which can cause problems if you are not aligned➡️ When should you raise debt, and when should you raise equity?While every business is subjective, my 2 cents are:Raise debt when you feel confident that you have a proven formula for generating a large ROI with the capital, and the interest is lowRaise equity when you feel there is a fair valuation for the company, and you are aligned with the person who wants to become an equity holder in your businessThat’s my take on raising debt vs equityWhat would you add?Let us know by joining in on the conversation in the comments below 👇Hey 👋 - thanks for reading! #business #share #money #businessowners #payments #future #management

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