Capitalizing a business

Your first step is to develop a business plan and capital-formation strategy.

Borrowing money requires regular repayments with interest. Getting capital from investors is usually easier on the cash flow, but requires you to give up some ownership (and likely some control) and return the capital with dividends eventually. Also, investors are going to have an exit strategy which might not be compatible with your plans.

The direction you choose will depend on which source of capital is more readily available -- and whether you would rather justify your performance to a banker or an investor. If you go the investor route, it's also critical to determine which type of investor is the best fit for your venture, an angel investor or venture capitalists.

Virtually all capital-formation strategies require you to balance these four key factors: risk, reward, control and capital. You and your banker or investor will each have your own ideas as to how these factors should be weighted and balanced. Once a meeting of the minds takes place, you'll be able to complete a transaction.