Capitalize only to the extent necessary – overcapitalization may increase your borrowings and increase your interest burden. While ideally, you should have adequate capital with a healthy operating cushion (to take care of unforeseen factors) – temptation to overcapitalize and borrowing more should always be avoided. New entrepreneurs during the start-up phase can avoid buying land and constructing buildings – they can instead work from leased premises or factory sheds. Major plant, machinery, and equipment can also be leased out to save on initial capitalization costs. In the initial period, which may vary from a few months to 2-3 years, many entrepreneurs fail or are forced to exit from the business. Once the entrepreneur has crossed this vulnerable period of risk and uncertainty and the business has picked up, one can always do judicious planning to build own assets and terminate all lease arrangements.
Here’s what Jim Breyer, an American venture capitalist, founder and CEO of Breyer Capital, has to say:
WHAT DO YOU THINK?
Let me know in the comments section.
In this ongoing series #GreatMinds on my blog, I am shining a spotlight on the important ideas that some very successful people keep talking about in their public life.