When to raise money and when to grow from profit instead

At some point most owners in British Columbia ask whether they should raise money. The question usually arrives with an opportunity: a second location, a large contract, a product that needs building, a competitor for sale. Sometimes it arrives with a problem dressed as an opportunity. The answer is rarely as simple as yes or no, and it is never as simple as the person offering the money suggests.

This guide is the way we think it through with owners at sedighi.ca and SAZ, where we also invest in and partner with businesses ourselves. It is not investment or securities advice. Raising money from investors involves securities law and your lawyer and registered advisers must be involved. The business thinking, though, comes first.

What outside money actually costs

Debt costs interest, covenants and personal guarantees, and it must be repaid whether the plan works or not. Equity costs a share of everything the business is worth forever, a share of every decision, and a new relationship that will outlast the enthusiasm of the first meeting. Both cost time, because raising money is a project that competes with running the business, and both cost focus, because money that arrives without a precise purpose gets spent on things that seemed sensible at the time.

The hidden cost is in what the money is for. If you cannot write down exactly what the capital will buy, what that will produce, and by when, you are not ready to raise. You are hoping money will substitute for a plan, and it does not.

The case for growing from profit

Growing from retained earnings is slower, and that is its main weakness and its main strength. It forces you to prove each step before funding the next, keeps all the ownership and control with you, and means that when you do eventually sell, every dollar of the price is yours. It also keeps you honest about the business: a company that cannot grow from its own profit is often a company whose unit economics do not yet work, and more money would only make the problem larger.

For most owner-managed businesses this is the right default. Reinvest, improve margins, remove owner dependence, and grow at the pace the earnings support. Our Growth Partner model exists for companies where that pace is clearly too slow for the opportunity, and we are selective about it for exactly these reasons.

When raising makes sense

• Demand is proven and documented, and the constraint on growth is capacity that only capital removes
• The return on the capital clearly exceeds its cost, with a plan you could defend to a sceptical lender
• The window is real, such as a contract, an acquisition or a market shift that will not wait
• The business can carry the obligations, debt service or investor expectations, in a bad year as well as a good one
• You have the systems and the people to deploy the money well, so it does not simply sit or leak
• You have decided what you are willing to give up, in control, ownership or flexibility, and the answer is still yes

Debt, equity or a partner

Debt suits a defined purpose with a predictable return: equipment, a location, an acquisition, working capital for a contract. The lender wants to be repaid, not to own you, and if the plan works you keep everything. Equity suits situations where the risk is too high for debt or the capital need is too large for the earnings to service, and where an investor's experience and network are worth the dilution. A hybrid, such as a revenue share or a performance-linked arrangement, suits businesses that want a partner's involvement without a permanent change in ownership.

Our own Growth Partner model at sedighi.ca works with Canadian companies doing roughly $500K to $30M with proven demand, on revenue share, equity or a hybrid of retainer plus bonus, with our team embedding across marketing, sales, operations, finance and technology. We mention it because it is one of the options, not because it is the right one for every business. Any equity or revenue share arrangement must be structured by your lawyer.

A practical way to decide

Write down the opportunity in one page: what it is, what it will cost, what it will return and by when, and what happens if it returns half as much. Then write down how you would fund it from profit and how long that would take. If the difference in timing does not matter much, grow from profit. If it matters a great deal and the plan survives the half-return scenario, explore debt first, then a partner, then equity.

If you want a second opinion before you talk to a lender or investor, a Strategy Session with Ali runs 90 minutes for $499. Call or text (604) 632-4959 or email ali@sedighi.ca.