Dave Ramsey says: Small businesses should not seek out investors

Dear Dave,

Do you think it’s a good idea for a small business, one that’s very young but growing, to seek out investors?

Trey

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Dear Trey,

My advice to someone in this position is to grow their business with organic cash. That may sound like a fancy phrase, but it just means you earn the money with which you’ll grow. This may mean growing a little bit slower, and it might even mean passing on a few “big deals” you thought were going to be the best things ever to happen to you and your business. But you want to know something? That’s okay.

I’ve turned down plenty of deals like that over the years, and it’s left me firmly convinced it’s better to be the tortoise than the hare.

Think about this. When you sell a piece of your ownership to people who are looking for a return, instead of caring about your dream, you’re creating the potential for a big mess. A lot of times, these folks will seem like silent partners—which is an oxymoron in small business. They might even present themselves that way in the beginning.

But the truth is most people who’ve put money into your business won’t keep silent. They’re all going to have different opinions and ideas, and there’s a strong possibility these are going to clash at some point with the vision you have for your company.

In short, I would not recommend a fledgling small business, even one that’s doing well, to seek out investors. Period. Cash flow your growth, Trey. Cash flow your equipment purchases, and the markets you enter, also.

Does this mean you might miss a good opportunity here and there? Sure, it does. But it also means you’ll be missing opportunities to fail. Too much success too soon is one of the biggest reasons why small businesses shut down. When you grow too quickly, you run the risk of outgrowing your financial resources, your infrastructure and your human resources.

Do what you can to ensure growth is steady, but play it smart. Don’t grow so fast that you crack the foundation of your company.

— Dave

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