It Takes Money To Make Money – Fact or Fiction

 

I’m sure that you’ve all heard the phrase “it takes money to make money.” But does it really? In my opinion, that saying isn’t entirely true and I will explain why as I continue on. But in the meantime, I’d like to point out that I am of the personal belief that this phrase is used by people who suffer from a defeatist, victim mentality. I say that because, when people use that phrase, what they’re really saying is that you have to already be rich in order to make money. But that’s fiction. That’s like saying that you have to already be skinny in order to lose weight.

In order to validate their belief that one has to be wealthy in order to make money, members of this crowd would then say that most millionaires come from wealthy families. Which is, again, a defeatist mentality. The truth is that 85% of millionaires are first generational. In other words, 85% of millions are self-made. Even if most millionaires did come from wealthy families, you’d have to ask yourself the logical question — how did the originator of that family’s wealth generate his or her fortune? I’m sure they didn’t start off wealthy. So that again pokes holes in that logic.

What is true, however, is that it takes CAPITAL to make money. Capital for businesses purpose can be defined as: Money invested in a business venture with an expectation of income, and recovered through earnings generated by the business over several years. It is generally understood to be used for capital expenditure rather than for day-to-day operations (working capital) or other expenses (taken from Business Dictionary). By that definition, you can now see that capital can be raised by entrepreneurs and businesses. It is no walk in the park to acquire capital, especially if you’re a start up but it is very possible to secure funding for a business granted that you have a great idea and a solid plan of action.

Many entrepreneurs mistakenly believe that a good idea in itself and a written business plan is all it takes to raise capital, but that’s the furthest thing from the truth. A lot of investors would love to see a business that is already operational and doing numbers of some sort. That way, they can not only make set a realistic expectation of recouping their investment but it is also possible for them to look at the company’s operation and make a few adjustments that will product better results. Of course there are exceptions to this rule. There are what we call “Angel Investors” who are known to provide seed capital to start up businesses that are not yet operational. BUT, as I’ve stated many times already, your plan has to be solid. It is also not as simple as producing an idea and a business plan and securing capital — some investors will want to see if you own any assets. That way, they can recoup some of their losses should you default on your obligation.

To make things easier on yourself as far as raising capital and getting a business off the ground, it is best that you save as much of your own money as you can. Some entrepreneurs also borrow from family and friends before seeking an investor. But saving your own money is ideal. That way, you can put some of your own money into the business to get your operation going and raise the rest. Even if you’re starting with a shoestring budget, that’s fine as well. But ideally, you’d want to invest in yourself and your business, grow continuously and then seek outside funding. I’ve spoken with investors in the past about various businesses I’d anticipated opening, and one of the main queries is how much of your own money have you put into your business.

Let me digress for a moment and discuss another matter: Over the years, I’ve heard many black entrepreneurs make the absurd statement that banks are racist because they grant fewer loans to black start-up businesses than to others of different races. They’ll go on to say that they’re entitled to a business loan because they have a great personal credit score. However, a personal credit score means nothing when you’re seeking a loan for a business. Besides, hardly anyone goes to a bank for start up capital. As I stated previously, many entrepreneurs start on a shoestring budget and/or borrow money from friends and family. This means saving your own money even if that requires working a menial job and living on a tight budget…which takes discipline. Also, another question that you have to ask is — what type of business are you trying to run and is it going to realistically generate enough revenue for the owner to repay his or her debts? The bank (like any other lender) of money is lending for the purpose of recouping their investment plus a return. If you don’t have a solid plan for a bank or even an investor to accomplish that end, you aren’t gonna get a loan and no, it isn’t racist…it’s smart business.

During the start up phase of a business, there is a great chance that you’re going to have to be somewhat of a jack of all trades. Which means that you and your partners if you have any, are gonna find yourselves doing a lot of the work. 16-20 hour days are not unusual. How many times have you walked into a local Mom & Pop Restaurant and saw one person taking orders from customers, preparing the food, delivering the food once it’s done and even cleaning the place? I’ve saw it a lot. Those are the kind of dues you’re gonna have to pay if you wish to raise capital in order to give your business a better shot at becoming successful. It is totally unrealistic to think that you’re gonna have an entire staff on-hand to perform the work when you’re in the start up phase.

Conclusion: That should dispel the myth that you have to already be wealthy in order to get wealthy. That’s nothing but a defeatist mentality that is embraced only by those that are looking for an excuse to not follow their goals….or an excuse to not even set goals. Some may be wondering what is the difference between “it takes money to take money” and my saying that it takes capital to take money. It may sound like the same thing since capital is money. But one implies that you have to be wealthy in order to make money whereas I’m telling you that funding for business ventures can be raised.

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