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Maximum Time: 60 Minutes

1. Do I Have the Cash to Grow?

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We have learned that successful business owners work to create a positive cash flow cycle. Through careful planning and persistence, they have sufficient cash to maintain and grow their business. They know their current cash position, and they routinely update their cash flow projections. They “see that all … things are done in wisdom and order” (Mosiah 4:27).

In addition, many business owners seek financing to pursue growth opportunities like those we learned about in chapter 9. If you decide to seek financing for your business, you will first need to have a detailed understanding of your business cash flow, especially the cash your business currently consumes and is projected to consume. It’s essential for you to ensure that your business has sufficient cash to maintain operations, cope with any unexpected situations, and grow according to your goals.

2. Is Borrowing Money Good or Bad?

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Personal debt and business debt are different. Personal loans are often used to spend more than we have the ability to pay. Business loans should be used to produce more than we have the ability to produce. Church leaders have counseled us to avoid personal debt. As Elder Joseph B. Wirthlin said: “Some debt—such as for a modest home, expenses for education, perhaps for a needed first car—may be necessary. But never should we enter into financial bondage through consumer debt without carefully weighing the costs” (“Earthly Debts, Heavenly Debts,” Ensign or Liahona, May 2004, 41).

Discuss:

Think of someone you know who has borrowed money for personal use. Did this help them or hurt them?

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We should be careful when considering business debt. But when handled wisely, “sound business debt is one of
the elements of growth” (Teachings of Presidents of the Church: Ezra Taft Benson [2014], 272).

Almost every business requires additional capital, or money, to grow. Business owners typically obtain additional capital through their own savings or by debt financing or equity financing. Debt financing means taking out a business loan and then repaying it with interest. Equity financing means receiving money in exchange for partial ownership of the company.

On occasion, business owners receive government grants or money from other sources. These funds usually do not have to be repaid.

3. Financing Options for My Business

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Successful business owners are thoughtful and creative in raising the funds they need to grow their business. There are many ways to obtain the funds you need. This section divides them into three categories. Category 1 looks at funds that are frequently used first, such as your personal savings. Category 2 explores different debt financing sources. Category 3 summarizes less-common financing options that may be applicable to some business owners.

Category 1: Common Financing Sources

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Most business owners initially finance their business growth by relying on their own savings, by bootstrapping (doing work themselves and not relying on external help), and by obtaining loans or investment money from close family members or friends. These options allow them to make quick decisions and to be flexible in managing the growth of their business.

Activity (5 minutes)

Step 1: As a group, read aloud the descriptions and the pros and cons of the following kinds of financing.

Common Financing Sources
Source	Description	Pros	Cons
Owner’s savings	The owner uses personal savings as a loan to the business or to invest in it.	Owner keeps control of the business Easy and immediate access Minimal paperwork	Personal and family sacrifice and risk Potentially insufficient funds
Bootstrapping	The owner does all the work, rather than hiring employees or getting a loan.	Owner keeps control of the business Reduces the need for cash High commitment to quality	Slower growth Potential lack of skill
Family and friends	Family members and friends lend money to the business or invest in it.	Loyalty and support Flexibility with financial rates and terms	Potential for strained relationships Potential for unwanted interference with the business

Step 2: Do you have previous experience with any of these financing sources? If so, do you have any insights? If not, what thoughts or concerns do you have?

Category 2: Debt Financing Sources

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In addition to using personal financing resources, many business owners seek funds through borrowing, or debt financing. The following questions can help guide the decision to borrow:

• Am I borrowing to grow my business, not for personal reasons?

• Am I borrowing to support a business that is not ultimately sustainable?

• Is the timing right to assume this risk?

• Am I comfortable with the terms of the loan I would receive?

• Am I borrowing the right amount?

• Will I be able to repay the debt and maintain my business operations with minimal risk to positive cash flow?

Discuss:

Imagine that you are considering borrowing money for your business. As a group, discuss how each of the preceding questions would help you with this decision.

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Credit cards are the most common source of debt financing, but they have high interest rates. A line of credit is a flexible option that allows business owners to manage the ups and downs of their cash flow needs. Bank loans, microfinance loans, and peer-to-peer lending are also available and offer many advantages, but they usually require a rigorous application process.

Activity (10 minutes)

Step 1: As a group, read each of the descriptions for the debt financing sources below. Then review the information that compares and contrasts these debt financing sources.

Debt Financing Sources: Strengths and Weaknesses
Credit Card	Line of Credit	Bank Loan	Microfinance Loan	Peer-to-Peer Lending
The owner makes purchases with a credit card and is expected to pay back the borrowed amount with interest.	A financial institution makes a flexible loan that allows an owner to repeatedly borrow for the business’s short-term cash-flow needs.	A bank lends money to the owner with the expectation of scheduled repayments of the principal with interest.	An organization lends a small amount of money to a business that is unable to receive a bank loan. These loans are available in almost every country.	Individuals lend to an unrelated business owner through an online service.

Debt Financing Sources

Step 2: As a group, read aloud each situation below. Determine which debt financing option you think is best and the reasons for your choice. Provide an answer for each situation before reading the next one.

Situation A: Malik needs 2,000 immediately to purchase materials for his holiday decoration business. Given the seasonality of his business and his ability to make immediate sales, he is confident that he can repay this money within 30 days.

Situation B: Nina has a custom staircase manufacturing business. She has been in business for 18 months and needs 35,000 to purchase a better lathe. She has good credit but little collateral.

Situation C: Saki needs 10,000 to fund a game that she is developing. She just started her business, has no previous financial statements, and anticipates that it will take a while to repay this money.

Step 3: Individually write an answer to one of the following questions:

What debt financing source would you like to research further for your business?

If you don’t think your business will need debt financing in the near future, what debt financing source would you like to learn more about?

Category 3: Infrequent Financing Sources

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Business owners are occasionally able to seek alternative financing options, as shown in the chart below. These options vary depending on the industry and the type of business opportunity. They are not common for most small business owners.

Activity (5 minutes)

Step 1: As a group, read aloud the descriptions and the pros and cons of the following kinds of financing.

Infrequent Financing Sources
Source	Description	Pros	Cons
Crowdfunding	Large numbers of people contribute small amounts of money throught the internet to a business they support.	Potential to raise significant funds quickly Generates consumer interest Tests possible demand for product	Many businesses lack sufficient “crowd” following Risk of your business idea being copied
Angel investor	One or more wealthy individuals invest in a business that has the potential for major growth.	Borrower receives funds and gains business connections Investor serves as experienced adviser	Potential for differing views and business interference Pressure to deliver results
Venture capital	A financial firm invests a large amount of money and expects business growth and eventual business sale.	Significant funds allow the business to grow rapidly Boosts credibility and offers potential to draw more customers and larger investors	Owner sacrifices some control of the business Intense focus on growing and eventually selling the business Pressure to deliver results
Incubator or accelerator	An organization provides a business with workspace, infrastructure, guidance, and business connections.	Boosts credibility Reduces expenses and the need for cash Provides experience, guidance, and support	Potential to not provide sufficient value to the business owner Potential for the owner to give away too much equity in the business
Grant	Government provides funds to a business for a specific purpose.	Exposure and credibility that attracts investors, customers, and other lenders Funds do not have to be repaid	Requires time to receive funds Difficult to qualify

Step 2: Individually answer the following question:

What infrequent financing source, if any, would you like to research further for your business? Why?

4. Researching Financing Options

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Finding the best financing sources for your business requires consistent effort. Financing sources vary greatly by location, so it’s important to talk with people you trust in your personal and community network. Online, government, and community resources will likely assist you with your search.

Discuss:

• What local or national organizations could provide guidance or resources for business financing?

• What online resources could provide guidance for business financing?

Activity (5 minutes)

Individually consider and then write down answers to the following questions:

• What online resources will you review this week to learn more about potential financing options? If you don’t know which online resources to access, what financing topics would you like to research and better understand?

• Who will you speak with this week from your personal or community network to learn more about financing options?

5. Integrity in Financial Relationships

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The thirteenth article of faith states that we believe in being honest. Financial relationships are based on trust and personal integrity. Acting with integrity means that we fulfill our agreements and avoid any deceitful practices.

If we borrow money, we should be sure to pay it back. As the Lord reminds us in the Doctrine and Covenants, “If thou borrowest of thy neighbor, thou shalt restore that which thou hast borrowed” (D&C 136:25).

If we obtain money for our business through a loan, from investors, or through a grant, we should use that money for the intent it was given, not for another purpose. When individuals or organizations provide money to our business, they should be able to trust that we will honor our agreement.

We have been counseled to stay away from financial arrangements that we don’t understand, that are too good to be true, that present conflicts of interest, or that place us in ethically questionable or unlawful situations.

Discuss:

What have you learned about having integrity in financial matters and avoiding deceitful practices?

Activity (5 minutes)

Step 1: Individually write down how you can show integrity as you receive and use money from others to grow your business.

Step 2: As a group, share some of the ideas you wrote down for step 1.