SEPARATING THE INVESTMENT AND FINANCING DECISION IN A NEW COMPANY

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Why should economic viability be analysed without considering financing?

It is important to analyse the economic viability of a company without considering financing because this allows the company to assess its ability to generate sufficient revenue to cover its costs and make a sustainable profit, without relying exclusively on external financing.

If a company relies solely on external financing to cover its costs and stay afloat, it may find itself in a precarious situation if it is unable to obtain further financing or if the terms of financing change. This can lead to insolvency and the need to close its doors.

By analysing the economic viability of a company without considering financing, the company can assess whether its business model is viable in the long term and whether it can generate enough revenue to cover its costs and make a sustainable profit. This can also help the company identify areas for improvement and adjust its business model before seeking external funding.

Of course, external financing may be necessary for a new company at certain times, especially at the beginning of its activity or in times of expansion.

However, By assessing the economic viability of the company first, the company can be in a better position to make informed decisions about the amount and type of financing it needs and to ensure that financing is not the company's only source of income.

Why is it important to separate investment and financing decisions when analysing the economic viability of a company?

TO ANALYSE THE ECONOMIC VIABILITY OF A NEW PROJECT, FINANCING MUST BE LEFT OUT OF THE EQUATION

First, it is important to analyse the economic viability of the business without considering financing, to assess whether the project is profitable and sustainable in the long term. Once it has been determined that the business is financially viable, you can begin to analyse the financing needed to carry out the project and ensure its success.

Financial feasibility focuses on identifying available sources of funding and determining the amount of capital needed to effectively carry out the project.

In short, economic viability focuses on the profitability and sustainability of the business, while financial viability focuses on the ability to finance the business effectively. Financial viability needs to be addressed further in the sprint 4 (ver+).

Getting a lot of funding (sprint 4) does not solve the product market fit (sprint 1) or the economic viability of your start-up (sprint 2) or customer acquisition (sprint 3). Having a lot of funding does not guarantee the success of a company if it does not first find a good Product-Market Fit and if it does not create a viable model and a commercial avenue to attract customers.

It is therefore important, focus on obtaining funding only when you have taken three of the above steps, but also on validating the business idea and making sure that there is a real demand for the product or service being offered, as well as properly tracking and controlling costs and revenues and investment.

It is common for many entrepreneurs to think that the solution to all their problems is to obtain a large amount of financing, however, this is not always true.

If a company has failed to establish a good Product-Market Fit, i.e. if it has not clearly identified who its potential customers are, what their needs are and how its product or service can effectively meet those needs, then the company is unlikely to succeed, even if it has a lot of funding.

It is important that before seeking financing, entrepreneurs validate their business idea and ensure that there is a real demand for their product or service. To do this, They can conduct pilot tests or prototypes, conduct interviews with potential customers and gather relevant information to improve their value proposition.

In addition, once the company has validated its business model and has established a good Product-Market Fit, it is important to have a proper monitoring and control of costs and revenues, as well as investment. In this way, the company can ensure that it is generating sufficient revenue to cover its costs and that it is using the investment efficiently and effectively to grow and expand.

In a nutshell, Having a large amount of funding is not enough to guarantee the success of a company, it is necessary that the company has managed to establish a good Product-Market Fit, has a viable business model and an effective commercial channel to attract customers, as well as adequate monitoring and control of costs and revenues and investment.

Separating investment decisions from financing decisions in start-ups

In the creation of new companies it is important to separate investment decisions from financing decisions in order to make more informed and appropriate decisions at any given time. Investment decisions are related to the choice of assets in which the company is going to invest its capital, be it machinery, technology, equipment, etc.

These decisions should be based on a rigorous analysis of the market and customer needs, as well as an assessment of cost-effectiveness and expected return on investment. Economic viability.

On the other hand, financing decisions relate to how the company will obtain the resources necessary to carry out its investments and operations. This may involve obtaining financial instruments. It is important to consider the financial implications of each option and select the most appropriate for the company's situation. Financial viability.

Separating these two decisions allows the company to focus on each area more effectively and to make informed decisions consistent with its long-term objectives.