Perhaps you are a new entrepreneur about to launch a business or innovation you have been dreaming about for years. Or maybe you have an established business and things are going well, or maybe even too well. In both instances you are going to need capital – the “oxygen” that every business needs to grow and prosper.

So now you are writing your first business plan or touching up the old one in anticipation of raising capital. Capital can only come into a business in one of two ways. Capital that is generated internally through positive cash flow from business operations (e.g., selling stuff), or from external funding sources. The new entrepreneur is limited to only one option – external funding sources. The established business is hopefully generating positive cash flow, but may require additional capital. Which funding option is best? Is it best that the capital come from only one source, or does it make more sense for the capital to come from multiple sources? How do you decide?

How you decide to capitalize the business is called your capital formation strategy. There are undoubtedly a number of other factors to consider depending on your company’s current circumstances, and, quite importantly, where you want your company to go in the next few years. If you are still hesitating what development strategy to pick for your company.