Author: Complete Controller

By: Jennifer Brazer

Jennifer is the author of From Cubicle to Cloud and Founder/CEO of Complete Controller, a pioneering financial services firm that helps entrepreneurs break free of traditional constraints and scale their businesses to new heights.

Fact Checked By: Brittany McMillen

Debt Financing: Key Advantages and Disadvantages Explained

Debt financing allows businesses to access capital through loans or credit arrangements while retaining full ownership of their company. This funding method requires repayment with interest over a specified term, offering strategic advantages for growth-focused businesses but also introducing financial obligations that must be carefully managed.

As the founder of Complete Controller, I’ve spent over two decades working with businesses across every sector imaginable. The debt financing decisions my clients make often represent pivotal moments in their growth journey. The global debt financing market is projected to grow from $25.6B in 2023 to $73.3B by 2033 at an 11.1% CAGR—clear evidence that businesses increasingly recognize its value. In this comprehensive guide, I’ll share what I’ve learned about structuring advantageous debt arrangements, avoiding common pitfalls, and making strategic decisions that support long-term business health.

What is debt financing and what are its key advantages and disadvantages?

• Debt financing is borrowing money that must be repaid with interest while maintaining full company ownership, offering tax benefits but requiring consistent repayment regardless of business performance
• The primary advantage is maintaining complete control of your business while accessing growth capital
• Interest payments on business debt are typically tax-deductible, reducing your overall tax burden
• The main disadvantage is the obligation to make regular payments regardless of your business’s cash flow situation
• Excessive debt can strain your credit rating and limit your operational flexibility through restrictive covenants

Understanding Debt Financing: Basics & Terminology

Debt financing involves borrowing funds from external sources with an agreement to repay the principal amount plus interest over a specified period. Unlike equity financing, which exchanges ownership stakes for capital, debt financing preserves your ownership structure while providing the necessary funds for business operations, expansion, or investment.

The debt financing landscape offers diverse options tailored to different business needs and stages. According to Federal Reserve data, 43% of U.S. small businesses applied for loans in 2023, with average amounts ranging from $479,685 for SBA loans to $663,000 for commercial bank loans. This high participation rate underscores debt financing’s critical role in business growth strategies.

Common debt financing structures

• Term Loans: Fixed-amount loans repaid with interest over a specific period
• Lines of Credit: Flexible borrowing options with predetermined limits that can be drawn as needed
• Equipment Financing: Loans specifically for purchasing business equipment, using the equipment itself as collateral
• Invoice Financing: Borrowing against unpaid customer invoices to improve cash flow
• SBA Loans: Government-backed loans with favorable terms for qualifying small businesses

Key players in the debt market

Traditional banks remain prominent lenders, but the financing landscape has expanded significantly. Alternative lenders, credit unions, online platforms, and specialized financial institutions now offer tailored debt solutions with varying qualification requirements, interest rates, and repayment terms.

Advantages of Debt Financing

Retaining control and ownership

Perhaps the most compelling advantage of debt financing is maintaining full ownership and decision-making authority over your business. When you take a loan rather than sell equity, you don’t dilute your ownership stake or invite external stakeholders into your governance structure.

This ownership preservation becomes increasingly valuable as your business grows. When profits increase, you won’t be sharing them with additional shareholders—the lender receives only the agreed-upon interest payments regardless of how successful your business becomes. This control retention is why many entrepreneurs prefer advantages of debt financing over equity when they have confidence in their growth trajectory.

Tax benefits and deductions

The tax advantages of debt financing represent a significant financial benefit. Interest payments on tax-deductible business loans can be written off as business expenses, effectively reducing your taxable income. This deduction can substantially lower your overall tax burden compared to equity financing, where dividend payments to shareholders aren’t tax-deductible.

Consider this example: If your business takes a $100,000 loan at 6% interest, the $6,000 in annual interest payments reduces your taxable income by the same amount. For a business in the 25% tax bracket, this represents $1,500 in actual tax savings.

Predictable payment structure

Debt financing provides clear, predictable payment schedules that facilitate accurate financial planning. Knowing exactly how much you’ll pay and when allows for precise cash flow forecasting and budget allocation. This predictability stands in stark contrast to equity financing, where investor expectations can fluctuate based on market conditions and business performance.

Case Study: Strategic Debt Use

Shopify, now a global e-commerce platform, utilized venture debt in its early growth phase to avoid equity dilution. This strategic choice allowed the company to maintain greater control while fueling expansion. The success of this approach later inspired Shopify to launch “Shopify Capital,” offering loans to merchants on its platform—creating a virtuous cycle of debt-fueled growth while preserving ownership stakes.

Disadvantages of Debt Financing

Repayment obligations and cash flow strain

The most significant disadvantage of debt financing is the obligation to make regular payments regardless of your business performance. Unlike equity financing, where returns to investors typically depend on profitability, debt payments remain due even during revenue downturns or seasonal slumps.

This inflexible payment structure can create dangerous cash flow constraints, particularly for businesses with irregular or unpredictable revenue streams. Missing payments can trigger severe consequences, including penalty fees, increased interest rates, damaged credit scores, and potentially the seizure of collateral assets.

Increased financial risk

High debt loads introduce substantial risk to your business operations. Excessive leverage can:

1. Strain your credit rating and limit future borrowing capacity
2. Make your business vulnerable during economic downturns
3. Reduce your ability to weather unexpected challenges
4. Trigger covenant violations that give lenders control rights

The cautionary tale of Bench Accounting illustrates these risks. The Canadian fintech firm collapsed in 2024 after accruing over $50 million in debt. When revenue growth failed to materialize as projected, the company couldn’t service its debt obligations, ultimately leading to asset liquidation and closure—demonstrating how business loans can become existential threats when growth assumptions prove overly optimistic.

Restrictive covenants and limitations

Lenders often impose restrictive covenants—specific conditions in loan agreements—to protect their interests. These covenants may limit your:

• Ability to take on additional debt
• Freedom to make major business changes
• Flexibility in asset management
• Options for using cash flow (requiring minimum cash reserves)
• Authority to change ownership structure

These restrictions can significantly constrain your operational flexibility and strategic options, potentially limiting growth opportunities that arise during the loan term.

Debt Financing vs. Equity Financing: Strategic Choices

The decision between debt and equity financing represents a fundamental strategic choice that shapes your business’s financial structure, risk profile, and growth trajectory. Each option offers distinct advantages and limitations.

When debt financing makes strategic sense

Debt financing typically works best when:

• Your business has steady, predictable cash flow to support regular payments
• You need capital for specific growth initiatives with clear ROI projections
• You want to maintain complete control over business decisions
• Your debt-to-equity ratio remains manageable after the new financing
• You can secure favorable interest rates and terms

These conditions often align with established businesses seeking expansion capital rather than early-stage startups with unproven revenue models.

When equity might be preferable

Equity financing generally makes more sense when:

• Your business has volatile or unpredictable revenue
• You’re in an early stage with limited operating history
• You want to share financial risk with investors
• You would benefit from investors’ expertise and networks
• You need patient capital without immediate repayment obligations

The corporate debt financing decision should always consider your specific business context, growth stage, and risk tolerance rather than following generic best practices.

Real-World Debt Financing Strategies

Industry-specific applications

Different industries leverage debt financing in ways that align with their unique business models and cash flow patterns:

Retail and E-commerce

• Inventory financing to stock seasonal merchandise
• Store expansion loans for physical location growth
• Working capital lines of credit to manage cash flow gaps

Manufacturing

• Equipment loans for production capacity expansion
• Factory renovation financing
• Supply chain financing to optimize payment terms

Technology and SaaS

• Venture debt to extend runway between equity rounds
• Acquisition financing for strategic growth
• R&D funding for product development

Small business application strategies

For small businesses specifically, strategic debt financing approaches include:

• Laddered Financing: Staggering multiple smaller loans with different maturity dates to manage repayment burdens
• Hybrid Solutions: Combining debt with limited equity to balance payment obligations with risk sharing
• Convertible Debt: Using notes that can convert to equity under certain conditions, offering flexibility if cash flow projections don’t materialize

These approaches help small businesses leverage the benefits of financing options for small businesses while mitigating some of the associated risks.

Tax Implications and Optimization Strategies

Maximizing tax benefits

To fully leverage the tax advantages of debt financing:

• Maintain Clear Documentation: Separate business and personal finances completely, documenting the business purpose of all borrowed funds
• Strategic Timing: Consider the tax implications of when you take on debt and make major interest payments
• Debt Restructuring: Periodically review existing debt for refinancing opportunities that could improve tax positions
• Interest Allocation: When debt serves multiple purposes, proper allocation of interest expenses maximizes deductible portions

Tax traps to avoid

Certain debt financing practices can create tax complications:

• Personal Guarantees: These can blur the line between business and personal liability
• Related-Party Loans: Transactions between related entities face additional IRS scrutiny
• Debt Forgiveness: Canceled debt is typically treated as taxable income
• Foreign Lending Sources: International financing arrangements may trigger complex tax reporting requirements

Consulting with tax professionals before finalizing major debt arrangements can prevent costly tax surprises later.

Mitigating Risks: Best Practices for Responsible Debt Management

Structuring debt responsibly

Responsible debt management begins with appropriate structuring:

• Match Debt Terms to Asset Lifecycles: Align loan duration with the useful life of financed assets (shorter terms for technology, longer terms for real estate)
• Diversify Lending Sources: Avoid over-reliance on a single lender to maintain negotiating leverage
• Negotiate Flexible Covenants: Seek covenant packages that provide operational breathing room and accommodate reasonable growth plans
• Implement Early Warning Systems: Establish financial monitoring processes that identify potential covenant violations before they occur

These debt financing strategies help preserve flexibility while maintaining lender confidence.

Crisis management and debt restructuring

When debt obligations become challenging:

• Proactive Lender Communication: Approach lenders early when problems arise rather than waiting until payments are missed
• Performance Improvement Plans: Develop and share specific strategies for addressing financial challenges
• Temporary Relief Options: Negotiate interest-only periods or short-term payment modifications
• Formal Restructuring: Consider comprehensive debt restructuring when fundamental changes to terms are needed

Early, transparent engagement with lenders typically produces better outcomes than avoidance or delay.

Final Thoughts: Balancing Opportunity and Obligation

Debt financing represents a powerful tool for business growth when used strategically. The ability to access capital while maintaining full ownership creates opportunities that might otherwise remain out of reach. However, this opportunity comes with clear obligations that must be respected and managed carefully.

The most successful businesses approach debt financing with a balanced perspective—leveraging its advantages while implementing safeguards against its risks. Despite current lending challenges, 75% of small businesses remain optimistic about their prospects, demonstrating the resilience that comes from strategic financial management.

Remember that the optimal financing approach often combines different capital sources, aligned with your specific business model, growth stage, and risk tolerance. At Complete Controller, we help businesses develop these tailored financial strategies that support sustainable growth while maintaining operational flexibility. Whether you’re considering your first business loan or restructuring existing debt, our team can help you navigate the complexities of debt financing to maximize its benefits while minimizing its risks.

FAQ

How much debt is too much for my business?

The appropriate debt level varies by industry, but most financial experts recommend keeping your debt-to-equity ratio below 2:1. More important than this general guideline is ensuring your debt service coverage ratio (EBITDA divided by annual debt payments) remains above 1.25, indicating your operations generate enough cash to comfortably cover loan obligations. Businesses with highly predictable revenue can safely carry more debt than those with volatile income streams.

Should I personally guarantee a business loan?

Personal guarantees significantly increase your risk exposure by making you personally liable if your business can’t repay the debt. For established businesses with strong credit profiles and substantial assets, negotiating to remove personal guarantees is advisable. Early-stage businesses may have no choice but to offer personal guarantees, in which case consider negotiating guarantee limits or sunset provisions that phase out the guarantee after a period of successful repayments.

How does debt financing impact my ability to raise equity in the future?

Moderate debt levels can actually make your business more attractive to equity investors by demonstrating creditworthiness and creating tax-efficient capital structures. However, excessive debt can deter investors who may be concerned about the business’s ability to service existing obligations while generating returns on their investment. The key is maintaining debt ratios within industry norms while clearly articulating how additional equity will accelerate growth beyond what debt alone could achieve.

What happens if I default on a business loan?

Loan default consequences vary by agreement but typically include: immediate acceleration of the full loan balance; seizure and liquidation of collateral assets; legal action to recover outstanding amounts; significant credit score damage; potential personal liability if you provided guarantees; and challenges securing future financing. Many lenders will work with businesses facing temporary challenges if approached before default occurs, offering modifications or forbearance agreements to avoid these severe consequences.

Are online lenders better than traditional banks for business loans?

Online lenders typically offer faster approval processes and more flexible qualification criteria than traditional banks, making them attractive for businesses needing quick capital or those with less established credit histories. However, this convenience usually comes with higher interest rates and fees. Traditional banks generally provide lower costs and more relationship-based service but have stricter requirements and slower processes. The best choice depends on your specific needs: prioritize banks for lower-cost, long-term financing and online lenders for speed or when traditional financing isn’t accessible.

Sources

• The Hartford. “Advantages vs. Disadvantages of Debt Financing.” www.thehartford.com
• LightspeedHQ. “Advantages and Disadvantages of Debt Financing.” www.lightspeedhq.com
• Investopedia. “How Does Debt Financing Work?” www.investopedia.com
• Capstone Partners. “Advantages and Disadvantages of Debt Financing.” www.capstone.com
• Wilcox Investment Bankers. “Advantages vs. Disadvantages of Debt Financing.” www.wilcoxib.com
• Indeed.com. “Equity vs. Debt: Definitions, Types, Pros and Cons.” www.indeed.com
• LightspeedHQ AU. “Advantages and Disadvantages of Debt Financing (Example Included).” www.lightspeedhq.com.au
• Corporate Finance Institute. “Debt Financing – Overview, Options, Pros and Cons.” www.corporatefinanceinstitute.com
• Market.us. (2024). “Debt Financing Market Size, Share, Growth.” www.market.us
• Federal Reserve. (2023). “Small Business Survey.” www.federalreserve.gov
• NerdWallet. (2024). “Average Small-Business Loan Amount.” www.nerdwallet.com
• FasterCapital. (2024). “Successful Startups that Used Debt Financing.” www.fastercapital.com
• Lex Substack. (2025). “Why Bench Accounting Collapsed.” www.lexsubstack.com
• Pilot.com. (2025). “Bench Acquired Cash Flow Forecast Reminder.” www.pilot.com
• Goldman Sachs. (2024). “10,000 Small Businesses Survey.” www.goldmansachs.com
• Internal Revenue Service (IRS). “Business Deductions.” www.irs.gov
• U.S. Small Business Administration. “Funding Programs: Loans.” www.sba.gov/funding-programs/loans
• Wikipedia. “Corporate Debt.” www.wikipedia.org/wiki/Debt
• Complete Controller. “5 Reasons Why Borrowing Money is Better Than Giving Up the Equity.” www.completecontroller.com
• Complete Controller. “Merger Finance Strategies.” www.completecontroller.com
• Complete Controller. “5 Money Management Tips to Help Avoid a Deficit.” www.completecontroller.com

About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual bookkeeping, providing service to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud platform where their QuickBooks™️ file, critical financial documents, and back-office tools are hosted in an efficient SSO environment. Complete Controller’s team of certified US-based accounting professionals provide bookkeeping, record storage, performance reporting, and controller services including training, cash-flow management, budgeting and forecasting, process and controls advisement, and bill-pay. With flat-rate service plans, Complete Controller is the most cost-effective expert accounting solution for business, family-office, trusts, and households of any size or complexity.

If you’re married and are temporarily unable to manage your money due to illness or other unanticipated situations, your spouse will likely step in and pay your payments. But what if you’re not married? You might miss bill payments, ruin your credit score, and have financial trouble if you don’t have a strategy.

Becky Blanton of Charlottesville, Virginia, experienced this when she was abruptly hospitalized for two weeks. She missed a few bill payments since no one could pick up the slack. To make matters worse, Blanton continues, “My auto insurance was not paid, so it was terminated, and before I could acquire new insurance, my license was suspended when the insurance company reported the cancellation to the state.”

Organize Your Responsibilities

To build a backup plan, you must first determine what financial responsibilities must be completed monthly. It involves keeping track of all bills and when they must be paid. Pay special attention to expenses where a missing payment might be difficult to recover, advises Courtney Smith, owner of Benefit Payee Services, a Denver-based daily money management firm. If you miss a life insurance payment, your coverage may lapse.

Decide What can be Automated

According to Stefan, putting your money on autopilot is a brilliant idea. Have your expenses paid straight from your bank account if you’re comfortable with it, and set up automatic monthly transfers to your employer’s retirement plan and savings account. Another strategy to avoid a pay gap is paying bills in advance, which Blanton does. “Paying an additional $25 to $50 each month on your electricity bill accumulates up to a month’s credit in case of an emergency,” she advises.

Determine Who Will be Your Point of Contact

If you don’t want payments debited from your accounts regularly, you’ll need to identify someone who can take over your financial commitments in an emergency. It should be a responsible person. “You want to make sure your designated person is someone you can trust and share your personal information with,” says Heather Murray, education and regulatory compliance manager at Advantage Credit Counseling Service in Pittsburgh. Then, bring it up with them to see if they’d be ready to help.

Consider Hiring a Pro

Some people choose not to entrust their cash to relatives or friends. In such a situation, Smith, the president of the American Association of Daily Money Managers, recommends hiring a daily money manager to take care of your bills. You may even engage them in advance, making a “pre-made agreement” with Smith so that the money manager knows what to do if you need them in the future.

Organize the Logistics

Create a file or electronic document containing instructions and information your backup person will need, such as online account usernames and passwords. Also, make it crystal clear what you want them to do. “It’s critical to spell out this arrangement’s expectations,” Murray adds.

Ascertain that they have all they require to do the task.Will you hand over your checkbook? Will they be required to log into your online banking account to send the funds? If you’re afraid to have someone else pay your fees, prepare a list of your creditors’ phone numbers, have your backup contact, and explain the circumstances. Often, creditors will offer you more time to make a payment in an emergency. Blanton, for example, has a $300 prepaid debit card on her desk, which a buddy may use to make bill payments in a crisis.

Think About the Laws

It would be best always to cover your legal grounds when asking someone to make financial choices for you. According to Murray, you should speak with an attorney about the arrangement since you may be required to sign legal paperwork permitting your authorized representative to act on your behalf. Finally, draft a contract describing everything this individual is responsible for and have both of you sign it.

When it comes to money management, the ideal time to make a contingency plan is before you need it, according to Blanton. “Be proactive and plan ahead of time.

About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual bookkeeping, providing service to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud platform where their QuickBooks™️ file, critical financial documents, and back-office tools are hosted in an efficient SSO environment. Complete Controller’s team of certified US-based accounting professionals provide bookkeeping, record storage, performance reporting, and controller services including training, cash-flow management, budgeting and forecasting, process and controls advisement, and bill-pay. With flat-rate service plans, Complete Controller is the most cost-effective expert accounting solution for business, family-office, trusts, and households of any size or complexity.

Finding an appropriate financial arrangement is critical for small businesses. Many major corporations request capital injections regularly to pay short-term obligations. Taking money from the incorrect place might lead to losing a portion of your business or lock you into repayment conditions that will stifle your growth for years. Unless your firm has Apple’s financial strength, you will ultimately want corporate finance.

 

There are Several Ways to Find Financing for a Small Business

A financial institution typically gives debt financing in exchange for recurring monthly installments until the loan is paid off.

A firm or a person invests in your company through equity financing, which means you don’t have to repay the money. However, the investor now owns a portion of your company, even a controlling interest.

Mezzanine finance mixes loan and equity financing, with the lender often having the option to convert outstanding obligations into firm ownership.

What is Equity Financing?

Rather than a human, a venture capitalist is frequently a corporation. All possible investments are subjected to Due Diligence by the company’s partners, teams of attorneys, accountants, and investment consultants. Because venture capital firms frequently make significant investments (3 million or more), the procedure can be lengthy, and the business might be complicated.

On the other hand, Angel investors are typically wealthy individuals who want to spend a modest sum of money on a single product rather than a company. For example, they’re ideal for a software developer who needs a money infusion to fund product development. Angel investors are in a hurry and want simple phrases.

Equity finance is money from an investor rather than a lender; if you go bankrupt, you owe the investor nothing because they are partners in the firm and lose their investment.

Advantages of Equity Financing

Financing your business through investors has several benefits:

The most important advantage is that you will not be required to repay the funds. Your investors or investors are not creditors if your firm goes bankrupt. They are co-owners of your company, so their funds are lost together with yours.

You’ll have extra cash to cover operational expenditures because you don’t have to make monthly payments.

Investors recognize that building a business takes time. You will receive the funds you require without the stress of having to see your product or company succeed in a short period.

The primary advantage of equity for small firms is that it does not have to be returned. On the other hand, bank loans or other types of debt financing immediately impact cash flow and come with severe penalties if payment terms are not fulfilled.

Start-ups with solid ideas and strategies are more likely to receive capital investment. Equity investors are more likely to take a chance on a solid concept since they are seeking growth prospects. They can also provide helpful advice and connections. Debt financiers want security. Thus, they usually ask for a résumé before approving a loan. Capital finance is frequently merely a source of funding.

Disadvantages of Equity Financing

In the same way, there are several disadvantages to equity financing:

What are your thoughts on having a new partner? When you acquire share financing, you give up ownership of a portion of your business. The more substantial and hazardous the investment, the more the investor wants more of your business. You may have to give up half or more of your company. If you do not arrange a contract to purchase back the investor’s stake later, that partner will be entitled to 50% of your profits permanently.

Before making a choice, you should talk with your investors. Your company is no longer solely yours, and if an investor owns more than 50% of your company, you must report to management.

Above that, the control issue is the most significant drawback of equity funding. If investors disagree with the entrepreneur on the company’s strategic direction or day-to-day operations, it might be an issue. Furthermore, certain stock transactions, such as restricted IPOs, can be complicated and costly, take time, and need the assistance of skilled attorneys and accountants. These changes may not be noticeable at first, but they might appear as the first bumps appear.

About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual bookkeeping, providing service to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud platform where their QuickBooks™️ file, critical financial documents, and back-office tools are hosted in an efficient SSO environment. Complete Controller’s team of certified US-based accounting professionals provide bookkeeping, record storage, performance reporting, and controller services including training, cash-flow management, budgeting and forecasting, process and controls advisement, and bill-pay. With flat-rate service plans, Complete Controller is the most cost-effective expert accounting solution for business, family-office, trusts, and households of any size or complexity.

It can be a tricky jungle to get through when you, as an entrepreneur, must finance your company. There are many different solutions, e.g., venture capital from business angels, investors, ALMI loans, factoring, and traditional bank loans. The additional financing options have advantages and disadvantages and fit differently depending on your company’s phase and the money to finance.

Savings

The first method for funding a startup company is to utilize your own money, referred to as bootstrapping. Making monthly loan payments may be difficult initially if you’re still working on generating positive cash flow. On the other hand, establishing a company with funds from your assets reduces the risk of going into debt immediately.

Using your funds for small company financing, on the other hand, is dangerous. If the business fails, you will lose the money you put into it. Aside from that, if you don’t have a lot of assets to draw on, your savings may only go so far. In that instance, you may need to complement your company investment with additional funding from other sources.

Family and Friends

If you don’t have personal resources or are hesitant to use credit cards for financing, you might seek financial assistance from friends and relatives.

The advantage of asking family and friends to invest in your business is that assuming they’re lending you money rather than giving it to you as a present, they may be able to provide you with better terms than a lender. For example, your parents may grant you a $25,000 loan with no interest. Getting a comparable deal from a conventional or online lender would be tough.

Get Help From Investors at Startup

For a startup company that needs startup capital, venture capital from business angels, investors, or existing owners is often best suited. The company has a limited track record in the startup phase, and the risk is usually higher. External investors will demand payment for this risk-taking by being on the upside. Investors will, therefore weigh potential future gains and value developments against your company’s potential risk not lifting. Investors will analyze the strength of the business idea in combination with the team’s implementation ability and then go in with money in exchange for a percentage of ownership in the business.

Review the Possibility of a Loan When You are Going to Scale Up and Grow the Business

You must have come a long way in your business to get a loan because banks and other lenders want to see that your idea works and that the company has a turnover. Lenders will assess the viability of the business and repayment ability. In concrete terms, this means that lenders will assess the company’s ability to pay interest and the ability to repay the loan within a reasonable time. Unlike investors, the lender will not share future profits or value development. But get paid for their financing at a predetermined interest rate. Therefore, lenders will focus more on the potential risk in the deal and the probability that you, as a borrower, can repay.

Angel Investors are Those Who Invest in Startups

Angel investors and venture capital are two ways to finance a firm without a loan. Instead, you’re effectively collecting funds from individuals or corporations who invest in new ventures.

Working with angel investors to finance a business offers several advantages, the most important of which is that the money you get does not have to be repaid. If your firm doesn’t take off, you won’t be saddled with a lot of business loan debt to pay off. When compared to a company loan, which may be limited to $100,000 or $500,000, angel investors can help you raise millions of dollars.

Lines of Credit and Business Loans

Business loans and lines of credit are 2 of the most traditional ways to fund a fledgling company. The beauty of loans is that they come in various forms and sizes. Microloans have previously been addressed, but you may also investigate the following:

• Loans with a short repayment period
• Loans for a long time
• Loans for development
• Finance for equipment

About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual bookkeeping, providing service to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud platform where their QuickBooks™️ file, critical financial documents, and back-office tools are hosted in an efficient SSO environment. Complete Controller’s team of certified US-based accounting professionals provide bookkeeping, record storage, performance reporting, and controller services including training, cash-flow management, budgeting and forecasting, process and controls advisement, and bill-pay. With flat-rate service plans, Complete Controller is the most cost-effective expert accounting solution for business, family-office, trusts, and households of any size or complexity.

You have an idea and want to get started with your business. The question is how to finance the company and be able to pay for everything. Here, you can read about some different ways to finance the start of a business. Be realistic and calculate what you need from the beginning and how much it will cost. Be prepared to invest your funds in your company. It increases opportunities to make others dare to risk contributing to your company’s financing.

How do you plan to fund your company? When beginning a business, cash is king, and you’ll need it. Fortunately, there are several options for obtaining funding.

Some of us need less startup capital, and some need to join. If you start a limited company, you need $50,000 to invest directly, plus any financing for other startup operations. If you create a small sole proprietorship and sell your services, a little less startup capital is required.

Forms of Financing

If you cannot finance the start with your own money, you must turn to a financier. The documents and conditions of funding differ but can generally be divided into

• Bank loan
• Venture capital
• Business angels
• Public funding
• Crowdfunding

Own Resources

It may take time before you receive income from the company while the bills continue to come in. Therefore, you must manage the first time with little or no pay. You can use saved capital, get an extra job, or stay in your old position while starting your business, perhaps part-time.

Calculate Your Capital Requirement

Try to get an idea of how much money you need in startup capital for your business startup and your current expenses to run the company over six months. At the same time, you need to calculate your private costs to have money left to live.

Internal Financing

The most common way to cover the company’s capital needs is through internal financing with its funds. Own funds can include private funds injected into the company or profits generated in the business. Internal funding means that only you and any partners completely influence the company. Also, remember to keep costs down as much as possible to free up as much money as possible for the most necessary expenses.

Finance Your Business with Crowdfunding

Crowdfunding means that several people account for a small part of each financing. Instead of a single giant financier pocketing the entire sum, many small financiers put each piece into an idea they like.

Crowdfunding is sometimes called grassroots funding, mainly through various online forums. In the media, you, as an entrepreneur, can present your idea. Financiers can then read your pitch and put in whatever amount they want.

Finance Your Company with Credit from the Bank

You can also finance your new company with credit from the bank. Negotiating with the bank does not differ much from a typical business deal. It is almost always possible to improve the interest rate a little or eliminate specific set-up fees. Prepare your pitch, roll up your sleeves, and start negotiating with the bank!

As in all negotiation situations, it is good to have alternatives. Therefore, contact a few different banks and ask them for other suggestions. It may well be that foreign banks make various assessments. In addition, there are excellent opportunities for you to fine-tune your arguments. Game on!

Venture Capital

For companies with high growth potential and good profit opportunities, obtaining financing from venture capital companies and business angels may be possible. In most cases, raising venture capital also means that the venture capital company becomes a partner in the company. Venture capital can enable the company to grow and develop faster.

It can be difficult for many growth companies to obtain financing initially; for example, bank loans and venture capital can be good alternatives. For the venture capital company, it is of utmost importance that they assess that your company can grow and become profitable, preferably in an international market.

About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual bookkeeping, providing service to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud platform where their QuickBooks™️ file, critical financial documents, and back-office tools are hosted in an efficient SSO environment. Complete Controller’s team of certified US-based accounting professionals provide bookkeeping, record storage, performance reporting, and controller services including training, cash-flow management, budgeting and forecasting, process and controls advisement, and bill-pay. With flat-rate service plans, Complete Controller is the most cost-effective expert accounting solution for business, family-office, trusts, and households of any size or complexity.

By: Jennifer Brazer

Jennifer is the author of From Cubicle to Cloud and Founder/CEO of Complete Controller, a pioneering financial services firm that helps entrepreneurs break free of traditional constraints and scale their businesses to new heights.

Fact Checked By: Brittany McMillen

Understand Weighted Average Cost of Capital (WACC) Essentials

Weighted Average Cost of Capital (WACC) is the average rate a company pays to finance its assets through both equity and debt, providing a critical benchmark for evaluating potential investments and business decisions. WACC combines the cost of each capital component weighted by its proportionate use in a company’s capital structure, delivering a comprehensive view of what it costs a business to fund its operations.

Over my 20+ years as CEO of Complete Controller, I’ve witnessed countless businesses transform their investment strategies by mastering WACC principles. The data speaks for itself—only 31% of public companies earn returns exceeding their WACC, highlighting a massive opportunity for strategic improvement. In this article, I’ll share actionable insights on calculating, interpreting, and leveraging WACC to optimize your capital allocation decisions, evaluate project profitability, and gain competitive advantages in your industry.

What is Weighted Average Cost of Capital (WACC) and why is it essential for businesses?

• WACC represents the average cost a company pays for capital from all sources including equity and debt, weighted according to their proportions in the capital structure
• It establishes the minimum required rate of return for new projects and investments
• WACC serves as a crucial discount rate for calculating net present value in capital budgeting
• It helps companies balance capital structure for optimal financing efficiency
• Understanding WACC prevents businesses from pursuing projects that destroy shareholder value by accepting returns below capital costs

Core Fundamentals of WACC: What You Need to Know

WACC represents the blended cost of all capital sources a company uses to fund its operations and growth. Think of it as the minimum return threshold a company must generate to satisfy all its investors—both shareholders and creditors. This comprehensive metric accounts for both equity financing (typically more expensive) and debt financing (usually cheaper due to tax benefits), weighted according to their proportion in the company’s capital structure.

The power of WACC lies in its versatility as both a decision-making tool and performance benchmark. When properly calculated, it provides a clear hurdle rate for new investments, helps optimize capital structure, and facilitates meaningful comparisons across businesses and sectors. For financial decision-makers, WACC serves as the dividing line between value creation and value destruction.

WACC defined

WACC represents the minimum return investors and creditors expect from a company. It’s calculated by assigning weights to equity, debt, and other capital sources based on their market value. For example, a company with $10M equity and $5M debt would weight equity at 66.7% and debt at 33.3% in its WACC formula. This weighted average cost of capital explanation provides the theoretical foundation for this essential financial concept.

The WACC calculation incorporates several key variables that reflect both internal company decisions and external market conditions. As market conditions shift, so does WACC—making it a dynamic rather than static metric that requires regular recalculation.

Cost components: Equity vs debt

Cost of Equity

The cost of equity reflects what shareholders demand for investing in your business. Unlike debt, equity has no contractual return, making it harder to quantify. Companies typically calculate it using models like the Capital Asset Pricing Model (CAPM), which factors in risk-free rates, market risk premiums, and company-specific risk factors (beta).

Cost of equity = Risk-free rate + Beta × (Market return – Risk-free rate)

Cost of Debt

Cost of debt represents what lenders charge for providing capital, typically expressed as the interest rate on loans or bonds. Since interest payments are tax-deductible in most jurisdictions, the after-tax cost of debt is what matters for WACC calculations. This tax shield creates a significant advantage for debt financing over equity.

After-tax cost of debt = Interest rate × (1 – Corporate tax rate)

Mastering the WACC Formula: A Practical Guide

The WACC formula may look intimidating at first glance, but breaking it down into components makes it manageable. This WACC formula breakdown provides a detailed explanation of each element and how they work together.

Simplified WACC calculation

The standard WACC formula is:

WACC = (E/V × Re) + (D/V × Rd × (1 – Tc))

Where:

• E = Market value of equity
• V = Total capital value (E + D)
• Re = Cost of equity
• D = Market value of debt
• Rd = Cost of debt
• Tc = Corporate tax rate

For private companies without readily available market values, book values can serve as reasonable proxies, though they may introduce some imprecision. The key is consistency in your approach.

Actionable Tips for Small Businesses

1. Estimate Re accurately – Use beta multipliers from industry benchmarks if CAPM data isn’t available
2. Leverage tax shields – Factor in deductions for interest payments to lower effective debt costs
3. Monitor capital structure – Adjust weights as funding mix changes

For more WACC calculation tips for small businesses, consider how your specific industry and growth stage affect your cost of capital. Small businesses often face higher equity costs due to size and liquidity premiums that larger enterprises don’t encounter.

Strategic Business Applications of WACC

WACC isn’t just a theoretical concept—it’s a practical tool that drives real business decisions with significant financial implications. Understanding the importance of WACC in finance helps executives make more informed capital allocation choices.

WACC as a capital budgeting tool

WACC serves as the discount rate for Net Present Value (NPV) analysis. Projects with returns exceeding WACC create value; those below destroy it. This simple comparison helps businesses prioritize competing investment opportunities and avoid value-destroying projects.

WACC accounts for 20-50% of the levelized cost of electricity for solar projects, making financing costs critical for renewable energy viability. In capital-intensive industries, even small WACC differences dramatically impact project viability.

Case Study: Renewable Energy Investment

A solar panel manufacturer compared a new turbine project’s IRR (12%) against its WACC (9.5%). The project was approved, generating long-term profitability. This example illustrates how WACC serves as the critical benchmark for investment decisions, especially in industries with substantial upfront capital requirements.

By applying rigorous cost of capital analysis, businesses can avoid the common pitfall of pursuing growth at the expense of profitability.

Risk assessment through WACC

WACC provides valuable insights into both a company’s risk profile and its capital allocation efficiency. Analyzing changes in your WACC over time can reveal shifting market perceptions about your business.

High WACC indicates:

• Elevated business risk (e.g., volatile markets, weak cash flows)
• Higher investor/lender expectations due to perceived risk
• Inefficient capital allocation versus industry peers

The midpoint WACC for the water industry rose from 2.6% in July 2022 to 3.2% in July 2024, reflecting rising interest rates and market volatility. This illustrates how macroeconomic conditions directly impact capital costs across entire sectors.

Advanced Insights: Beyond Basic Calculation

The most sophisticated financial professionals understand how to apply WACC in context, recognizing both its power and limitations. For deeper weighted average cost of capital insights, consider how WACC intersects with other financial metrics.

WACC vs ROI: Strategic decision making

Metric	Purpose	Limitations
WACC	Minimum required return	Ignores project-specific risk
ROI	Project profitability	Doesn’t account for capital cost

 

WACC and ROI work best in tandem—WACC establishes the hurdle rate, while ROI measures if specific investments clear that hurdle. Neither metric alone provides sufficient guidance for optimal decision-making.

Why WACC Trumps IRR

WACC is industry-agnostic and incorporates tax implications, whereas IRR focuses narrowly on project returns. For comprehensive capital budgeting, WACC provides a more stable benchmark that accounts for overall financing costs rather than just project-specific returns.

The Software (Internet) industry has a WACC of 11.88%, while Water Utilities have a WACC of 3.46%, demonstrating how industry risk profiles impact capital costs. These dramatic differences reflect varying business models, capital intensity, and regulatory environments.

Challenges in WACC Implementation

Despite its value, implementing WACC correctly presents several challenges that financial professionals must navigate carefully. Recognition of these pitfalls is the first step toward avoiding them.

Common pitfalls in calculations

1. Static Weights – Assuming capital structure remains unchanged, even during project phases
2. Risk Mispricing – Using generic beta values instead of industry-specific adjustments
3. Tax Rate Inaccuracy – Applying statutory rates instead of effective tax rates

Tesla’s 2025 WACC of 7.4% is lower than the software industry average (9.96%) due to its stable debt structure and tax incentives for green manufacturing. This demonstrates how company-specific factors can create advantages in capital costs relative to industry peers.

From Jennifer, Founder of Complete Controller:

I’ve seen clients overextend on high-WACC projects, creating significant financial strain. One client’s real estate development had a 10% WACC but pursued a 9% ROI project, eroding shareholder value over time. The damage wasn’t immediately apparent, but gradually undermined their financial foundation. This experience taught me that always stress-testing WACC calculations through scenario analysis is essential for robust financial planning.

Industry Benchmarks & Comparative Analysis

WACC varies dramatically across industries due to differences in capital intensity, business cycle sensitivity, and regulatory environments. Understanding these variations provides valuable context for your company’s capital costs.

WACC across sectors

Industry	Average WACC Range	Key Drivers
Tech	8-12%	High equity costs, low debt
Manufacturing	7-9%	Moderate leverage, stable cash flows
Utilities	5-7%	Regulatory stability, debt-heavy

 

These benchmarks offer starting points for comparison, but each company’s unique circumstances ultimately determine its specific WACC. Industry position, growth trajectory, and financial health all influence individual capital costs.

Strategic Takeaways

• Lower WACC ≠ always better – Reflects capital structure efficiency
• High WACC ≠ unprofitable – May signal rapid growth phases requiring heavy equity investment

Only 31% of public companies earn returns exceeding their WACC, per a 2024 Gartner survey, underscoring the need for precise WACC calculations. This statistic highlights both the challenge and opportunity of using WACC effectively.

Conclusion

WACC remains a cornerstone metric for informed financial decisions across businesses of all sizes. By calculating it rigorously and applying it thoughtfully, you can optimize your investment strategy, improve capital allocation, and create sustainable shareholder value. The companies that master WACC implementation gain significant competitive advantages through more efficient capital deployment.

Throughout my career at Complete Controller, I’ve helped hundreds of businesses transform their financial decision-making by incorporating sophisticated WACC analysis into their planning processes. The results speak for themselves—better investment choices, improved capital structure, and enhanced shareholder returns.

For personalized guidance on implementing WACC in your specific business context, visit CompleteController.com to explore how our team can help you optimize your capital allocation strategy.

FAQ

What is a good WACC?

A “good” WACC depends on industry and capital structure. Typically, WACC below the industry average indicates efficient capital sourcing. For example, utilities often have WACCs in the 5-7% range, while technology companies may run 8-12%. The key is comparing your WACC to relevant industry benchmarks rather than arbitrary standards.

How does WACC affect investment decisions?

Projects must exceed WACC to create value. Those below WACC should be rejected or reassessed. WACC serves as the discount rate for NPV calculations and the hurdle rate for IRR evaluations, effectively drawing the line between value-creating and value-destroying investments.

What factors increase WACC?

Higher equity volatility, riskier debt, or tax rate hikes all elevate WACC. Conversely, debt tax shields and stable cash flows lower it. Macroeconomic factors like rising interest rates typically increase WACC across all industries, though the magnitude varies by sector.

Can WACC change over time?

Yes. Capital structure shifts, market conditions, or tax policy changes alter WACC dynamically. Regular recalculation is essential. Many companies update their WACC quarterly or at least annually to reflect current market realities and company-specific developments.

How to calculate WACC without market value data?

Use book value as a proxy, but be aware this may distort results. For public companies, real-time market data is preferable. Private companies can use industry comparables and adjust for size, leverage, and growth differences to estimate market values.

Sources

• Investopedia. “Weighted Average Cost of Capital (WACC).” www.investopedia.com/terms/w/wacc.asp
• Corporate Finance Institute. “WACC Formula, Definition and Uses.” corporatefinanceinstitute.com/resources/knowledge/valuation/wacc-formula/
• IPART. (August 2024). “WACC Biannual Update.” www.ipart.nsw.gov.au
• Wikipedia. “Weighted Average Cost of Capital.” en.wikipedia.org/wiki/Weightedaveragecostofcapital
• International Energy Agency (IEA). (2021). “The Cost of Capital in Clean Energy Transitions.” www.iea.org
• Valuetoro. (2025). “Tesla WACC Analysis.” www.valuetoro.com
• CFODive. (2024). “Most CFOs Don’t Drive Returns Exceeding Cost of Capital.” www.cfodive.com
• Indeed. “How To Calculate WACC (Weighted Average Cost of Capital).” www.indeed.com
• GoCardless. “How to Calculate WACC.” www.gocardless.com
• The Funding Family. “Investors Need a Good WACC.” www.fundingfamily.com
• Business Insider. “Understanding Weighted Average Cost of Capital (WACC).” www.businessinsider.com
• NYU Stern. (2025). “Cost of Capital by Sector.” pages.stern.nyu.edu

About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual bookkeeping, providing service to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud platform where their QuickBooks™️ file, critical financial documents, and back-office tools are hosted in an efficient SSO environment. Complete Controller’s team of certified US-based accounting professionals provide bookkeeping, record storage, performance reporting, and controller services including training, cash-flow management, budgeting and forecasting, process and controls advisement, and bill-pay. With flat-rate service plans, Complete Controller is the most cost-effective expert accounting solution for business, family-office, trusts, and households of any size or complexity.

The quality of a person’s life largely depends on what he does. Choosing a profession is highly relevant for young people, especially school graduates. After graduation, you must decide what to do and who to go to study. There is a category of people who immediately get a job. Some manage to study and work. Not everyone is ready for such a choice: they unconsciously determine their future profession and regret it.

Typical Mistakes When Choosing a Profession

It will not be superfluous to closely monitor the labor market to determine what professions are currently in demand. During the last school year, you must analyze your preferences, morals, and hobbies and listen to your heart. Unfortunately, most young people choose a profession not “at the call of their heart” but guided by different criteria. However, as practice shows, a true professional succeeds even in a very high competition segment.

Choice of Parents

A typical situation: My grandfather and father are doctors, so I should be a doctor. If you are unsure you want to work in this direction, do not be fooled by parental requests. Look for something of your own. Parents frequently give their children complete freedom of choice, implying that they expect independence, responsibility, and initiative. It is common for parents to disagree with their child’s choice and suggest reevaluating their plans and making an alternative decision. The right career decision is frequently complicated by the views of parents who want their children to pay for their faults in the future, in activities in which they were unable to represent themselves at the time completely.

Where Everyone is, There I am

Friendships among high school students are strong, and their influence on career choices is not unheard of. The micro group’s position can even be significant in professional self-determination. It is especially true for persons with standardized thinking, prone to stereotypes and imitation, and who cannot adequately express their position as consumers rather than creators. Of course, within context, a sense of belonging and a peer orientation are beneficial characteristics of adolescents. Studying as an economist or a lawyer at one time was fashionable. But today, the market is so oversaturated with this personnel that most graduates work outside their specialty. Prestigious positions are occupied only by the best of the best. They pay a lot. Yes, a good salary is an important criterion. But to achieve heights, you must work hard and for a long time. Employers prefer to hire candidates with experience who perform their duties flawlessly.

Maybe

There is a category of people who choose a profession by chance. Someone is lucky. He is fond of his work and has become a specialist. Others realize the mistake too late. To choose the right direction of activity, listen to yourself. Can’t decide, have doubts? Do not be afraid to seek the advice of a psychologist. He probably has a few reserve tests to help him discover something you do not know about you. It is essential to ensure that the information that a person acquires about a particular profession does not turn out to be distorted, incomplete, or one-sided. Enthusiasm for only a job’s public or personal aspects can lead to severe blunders and disappointments. For example, there is complex, everyday labor in the ease with which an actor constructs an image on stage. Reporters do not always appear on TV shows; they process a large amount of data, consult archives, and speak with hundreds of individuals before preparing a five-minute report.

Abilities

These are the individual psychological characteristics of a person, manifested in labor or other activities, and are a condition for the success of its implementation. The speed, depth, ease, and strength of mastering knowledge-acquiring skills and abilities depend on abilities. But the powers themselves are not limited to knowledge and skills. The development of abilities should occur throughout life. It would be best if you judged the originality of one’s abilities by academic success and achievements in various activities. An objective view of them is also formed with the help of special research testing aimed at enhancing self-knowledge.

Temperament

It plays a significant role in choosing a profession. An unpleasant circumstance impacts the activity of many states of mind, and psychological variables are influenced by it. You can figuratively describe that people of choleric temperament are more suitable for active, risky activities, sanguine people for organizational activities, melancholic people for creative activities in science and art, and phlegmatic people for systematic, unhurried, and productive activities. About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual bookkeeping, providing service to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud platform where their QuickBooks™️ file, critical financial documents, and back-office tools are hosted in an efficient SSO environment. Complete Controller’s team of certified US-based accounting professionals provide bookkeeping, record storage, performance reporting, and controller services including training, cash-flow management, budgeting and forecasting, process and controls advisement, and bill-pay. With flat-rate service plans, Complete Controller is the most cost-effective expert accounting solution for business, family-office, trusts, and households of any size or complexity.

The product of innovation in the form of new products and the process of introducing new technologies, equipment, and materials are the most employed in practice. Economical – the use of previously unused systems and forms of remuneration and methods of managing production costs; marketing – the development of new markets and ways of promotion; social – the use of previously unused methods of labor motivation; and environmental – the use of new technologies – the implementation of new technologies.

Reactive innovations emerge as a reaction to competitors’ actions and, like strategic ones, aim to increase a product’s or service’s competitiveness. Strategic innovations are generally promising in nature and are designed to ensure the competitiveness of an enterprise or organization; reactive innovations emerge as a reaction to competitors’ actions and, like strategic ones, aim to increase the competitiveness of a product or service. The categorization of breakthroughs described above is helpful for statistical accounting and positioning products in a competitive market, assessing your viability, developing a growth plan, and justifying management improvements.

In industry, it is customary to distinguish between two types of technological innovation – product and process:

Product Innovation

It covers the introduction of technologically new or improved products:

A technologically new product (radical product innovation) is one whose technological characteristics include functional features, design, and additional operations. As well as the composition of the materials and components used) or intended uses are fundamentally new or differ significantly from those of previously manufactured products with similar characteristics and uses. These breakthroughs can be based on entirely new technology or a combination of current technologies in their new application (including research and development results). Microprocessors and video cassette recorders are two examples of radical (fundamentally new) technologies. A type two innovation was the first portable cassette player, which integrated the critical concepts of tape recorders and micro ear loudspeakers.

A technologically improved product is a product, the quality or cost characteristics of which have been noticeably enhanced using more efficient components and materials, a partial change in one or several technical subsystems (for complex products).

Process Improvement

This form of innovation is based on the employment of new manufacturing equipment, new methods of arranging the manufacturing process, a combination of these, and the use of research and development results. It entails the creation and execution of technologically advanced or significantly improved manufacturing procedures and product transfer methods. Typically, such innovations are intended to improve production efficiency or transfer products already used in the company. Still, you can also use them to create and supply technologically new or improved items that cannot be produced or provided using traditional manufacturing techniques.

When a service’s qualities or usage methods are fundamentally new or considerably (substantively) improved in terms of technology, it is termed a technical innovation in the service sector. Technological innovation also refers to employing significantly enhanced production methods or transmitting services. The latter refers to equipment or production organization changes associated with the production or transfer of new or significantly improved services that cannot be produced or transferred using existing methods or with an increase in the efficiency of existing services manufacturing or exchange.

Conclusion

Organizational and managerial changes, including the transition to advanced management methods, the introduction of significantly changed organizational structures, and the implementation of new or very changed directions in the economic strategy of the enterprise. You may use new knowledge or technology in product innovations. They could also be founded on novel applications, current knowledge, and technology combinations. Both goods and services are referred to as “products.” Product innovation refers to introducing new goods and services and significant changes in the functional or consumer features of previously existing goods and services. We should consider innovation as a range of tools for solving specific issues, just like any other field. For the duration of the company’s existence, we do not rely on a single marketing approach or a single source of revenue. In the same way, we need to create a portfolio of innovative strategies for specific tasks.

About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual bookkeeping, providing service to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud platform where their QuickBooks™️ file, critical financial documents, and back-office tools are hosted in an efficient SSO environment. Complete Controller’s team of certified US-based accounting professionals provide bookkeeping, record storage, performance reporting, and controller services including training, cash-flow management, budgeting and forecasting, process and controls advisement, and bill-pay. With flat-rate service plans, Complete Controller is the most cost-effective expert accounting solution for business, family-office, trusts, and households of any size or complexity.

A business always needs capital, especially when your innovation is to be developed and tested before you get customers to buy. The need is governed by the type of business you conduct and your financial situation and is divided into working capital and investment capital. Operating capital applies to what is needed in everyday life for day-to-day operations and to manage differences between when you get paid for your service or product and when you must pay your bills. The investment capital applies to what is needed to invest in the company, such as product development, machinery, and equipment.

There are many types of financing offered:

Equity

The simplest and most obvious is your own money. Starting there is a good idea if you have sufficient resources for the business and investments. 

Network

With family, relatives, friends, or contacts, some may believe in your idea and are willing to invest. Through a loan, they can become co-owners, or maybe someone can contribute.

Banks

Borrowing from the bank is something many people do. Still, as a new entrepreneur, it wants to go through collateral, such as a house, apartment, or another person going on bail, yourself as an entrepreneur, and your business plan or idea.

Lender

In addition to the bank, other players who only have one idea lend capital to already established companies from you. There are many types of loans with additional terms; mainly, you turn to.

Customers and Suppliers

When your business has come so far that you have customers and suppliers, hopefully, most of your financing will start there, i.e., you can live on what you sell. Here, you should ensure that the customer pays as soon as possible and that you get a good payment term from the suppliers.

Leasing and installment

You can ask the person you buy from for a lease or installment for investments in machinery, equipment, and other things that cost a lot. Leasing is like an agreement where you pay a fee every month, and when paying off, you decide to split the payment over a certain period and not spend everything at once.

Leasing can be an option when you need machines, equipment, or cars in the company. Once you have decided to acquire a machine, a car, or equipment, the supplier sells the object to a finance company (the lessor). The lessor then rents the property to your company for a more agreed monthly or quarterly rent. After the end of the rental period, you get the opportunity to buy the object at a predetermined price, the residual value. In this way, the company does not tie up capital in equipment but instead pays a leasing fee for the right to use the equipment. Since leasing is a form of rent, you do not own the leasing object; thus, it is not counted as an asset in the balance sheet.

Factoring

Factoring means invoice mortgaging. In factoring, your company is granted credit with accounts receivable as collateral. The invoice is pledged and transferred to the finance company. As usual, your company sends the invoices to the customer, but the finance company handles the collection and accounting of the invoices.

Investor

Many invest in innovations and companies and expect returns in the future. Here, you will find so-called venture capital companies and so-called business angels. A venture capital company is a company, while a business angel is a private person who wants to invest in new innovative businesses.

Contribution

It is also possible to receive a grant for innovation or a business start-up, i.e., you do not have to pay back the amount you receive. It often happens with public actors such as the Swedish Public Employment Service, the County Administrative Board, or various European Union initiatives.

P2P: Peer-to-Peer

The transfer or exchange of information, data, or resources amongst parties without the intervention of a central authority is usually referred to as decentralization. Individual and group interactions are frequently dispersed in P2P.

A successful entrepreneur is frequently prepared to invest in similar fresh concepts. As a result, it’s a procedure in which people pool their money to help one another. Business or ethnic groups supporting similar efforts are common examples.

Computers and networks (peer-to-peer file sharing) and currency trading utilize the approach (virtual currencies).

Microloans

Microcredit, up to a few thousand dollars or less, is available from businesses and non-profit groups to encourage entrepreneurship and persons who would not otherwise qualify for bank funding. About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual bookkeeping, providing service to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud platform where their QuickBooks™️ file, critical financial documents, and back-office tools are hosted in an efficient SSO environment. Complete Controller’s team of certified US-based accounting professionals provide bookkeeping, record storage, performance reporting, and controller services including training, cash-flow management, budgeting and forecasting, process and controls advisement, and bill-pay. With flat-rate service plans, Complete Controller is the most cost-effective expert accounting solution for business, family-office, trusts, and households of any size or complexity.

Before you choose business insurance as a starting entrepreneur, you assess the risks you will run as an entrepreneur. How will you manage these risks? You can keep a buffer for some risks, but often, you also need business insurance.

Then the question is, which insurance policies for self-employed persons suit you? You decide that yourself because every starting entrepreneur is unique. Don’t feel like or don’t have the time to read this article? This tool lets you quickly calculate which insurance policies suit your needs and risks.

 Liability Insurance

Where work is done, mistakes are sometimes made. That can happen to anyone, including you. You, your employees, or your products can cause injury (to persons) or material damage (to property) and then be held liable.

Company Liability

Company liability is a business insurance policy. Private liability insurance does not reimburse damage you cause to others from your company. Most entrepreneurs, therefore, opt for business liability insurance right from the start.

Professional Liability

For example, do you work as an architect, engineer, lawyer, marketing consultant, or accountant? Then, your client can hold you liable if an error in your advice or calculation leads to direct financial loss. You insure this risk with professional liability insurance.

Disability insurance, is it necessary?

To assess whether disability insurance is an intelligent choice, first list what it means if you cannot work for a long time.

• Which costs continue, and on which income can you still count?
• Do you have enough reserves on hand?

Many entrepreneurs think that an AOV is expensive, but you partly determine how high the premium is. The exact amount of the compensation depends, among other things, on your age, profession, and the amount you want to insure.

Legal Expenses Insurance

Any entrepreneur can have a conflict with customers, employees, or suppliers. For example, the agreements are unclear afterward or because the accounts remain open even after several reminders.

Many starting entrepreneurs, therefore, take out business legal assistance insurance. You will get expert help and advice to resolve a business conflict with an eye for the business relationship, which you naturally want to keep.

Lawsuit

You will receive expert legal assistance if the conflict ends in a lawsuit. For example, the legal costs or costs of a bailiff or lawyer are also reimbursed. Check carefully what maximum amount your insurance will pay for this and which conditions apply to you. 

Taking out Legal Expense Insurance: When is it Wise?

Business legal assistance for starting entrepreneurs: What you can expect?

It is good to know as an entrepreneur, you need business legal expenses insurance. Your private insurance does not cover business conflicts.

Inventory and Inventory Insurance

The stuff you sell, your stock, your parts, building materials, and the office furniture are annoying if something happens to it! With inventory and stock insurance, you protect your stock and business assets against damage from fire, burglary, theft, weather, or vandalism.

Difference Between Inventory Insurance and Inventory Insurance

These two insurance policies for entrepreneurs are similar but not the same. For example, stock insurance ensures your stock, raw materials, and consumables. The inventory insurance provides, for example, your laptop, desk, and cash.

Storage Stock and Inventory

Good to know: if you store stock or items elsewhere, for example, in rented storage space, they are insured under your inventory and inventory insurance. But if you keep your reserve or belongings outside on your property, they are only insured against fire damage.

Please note: if you want to ensure your laptop, smartphone, or other portable electronics while on the road, you need extra electronics insurance.

Business Stagnation Insurance

Your company can come to a partial or complete standstill after a fire, storm, burglary, theft, collision, or environmental or water damage. A closed access road due to a fire in the area can also be disastrous for turnover. The longer it takes to return to work, the more income you miss.

Entrepreneurs who opt for business interruption insurance ensure their gross profit if their business comes to a standstill due to such an event. They are also assured of income during the recovery phase.

Health Insurance

Health insurance is compulsory for everyone in the Netherlands, even if you are an entrepreneur. In paid employment, the employer pays the employer’s tax. Now that you are an entrepreneur, you pay an income-related contribution based on your taxable income (the Health Insurance Act premium).

Which health insurance is best for every entrepreneur is different?

Pension Insurance

As an entrepreneur, you are only entitled to AOW after your AOW age (in 2021: 66 years + 4 months). You are responsible for building up a supplementary pension yourself.

Every pension advisor will advise you to list which costs and income you can count on after retirement.

About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual bookkeeping, providing service to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud platform where their QuickBooks™️ file, critical financial documents, and back-office tools are hosted in an efficient SSO environment. Complete Controller’s team of certified US-based accounting professionals provide bookkeeping, record storage, performance reporting, and controller services including training, cash-flow management, budgeting and forecasting, process and controls advisement, and bill-pay. With flat-rate service plans, Complete Controller is the most cost-effective expert accounting solution for business, family-office, trusts, and households of any size or complexity.