Every business needs cash to survive. Cash is like oxygen for a business. You must have it.
Now, there are three ways for your business to generate cash.
Way #1: You can borrow it.
Way #2: You can sell a piece of your business in exchange for cash.
Way #3: You can make a profit from your business.
Way #1 is called debt-financing. Way #2 is called equity-financing.
Both are popular ways to grow your business.
The benefit is that you can get access to cash fairly quickly.
The downside is that you don’t really own the cash. They want it back.
So, if you choose to get cash using Way #1 or #2 you’ve got to ensure that one thing is true: that whatever you are purchasing is going to give you a return. Specifically called a Return on Asset.
Think about it, “cash” is an asset. You are gaining asset to cash to do something with it. Whatever you plan to do must give you a return on that cash (the asset).
A good question to ask yourself when borrowing money or getting investors is what will my “return on assets” look like?
A better question, however, is to first ask yourself: what will it take for me to get cash using Way #3?
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