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I've always looked at this a little differently - There are only two sources of cash for a startup, customers and investors. Every dollar you spend has to come

by pge 16y ago

I've always looked at this a little differently - There are only two sources of cash for a startup, customers and investors. Every dollar you spend has to come from one or the other. The more of your dollars that come from customers, the less of your company you have to sell off to investors. So, use the hard won dollars from your customers wisely, so you can minimize how much you have to take from investors (zero in the best case).

JacobIrwin 16y ago
Don't retained earnings become a part of owner's equity after dividends? To me, a buck is a buck. Spend it all "wisely."
- pge 16y ago
  yes and no - different bucks have different costs. Every dollar you spend is an investment, so you should be asking what return you're going to get for it. For example, if I add another developer, how much value will be created by the extra expense? If I buy a new sofa, how much value? So, on the one hand, I agree with you that every dollar should be invested for maximum return, and it doesnt matter where it came from, but on the other hand, there are decisions to be made about going out and getting more capital above and beyond your retained earnings (i.e. debt or equity financing). That money comes at a much higher price, so the return on it has to justify the cost. To put it in terms of an individual rather than a company, the decision to take out a mortgage to buy a house is connected but somewhat different than the decision of where to spend or invest your salary dollars. The mortgage is a loan that comes at a cost (the annual interest), yet it enables you to do something (buy a house)that you could not have done out of your earnings. So, many people choose that the return on owning a home (whether financial or otherwise) justifies the decision to seek out a source of capital beyond their earnings, even though that capital comes at a cost.

by pge 16y ago

JacobIrwin 16y ago

Don't retained earnings become a part of owner's equity after dividends? To me, a buck is a buck. Spend it all "wisely."

pge 16y ago
yes and no - different bucks have different costs. Every dollar you spend is an investment, so you should be asking what return you're going to get for it. For example, if I add another developer, how much value will be created by the extra expense? If I buy a new sofa, how much value? So, on the one hand, I agree with you that every dollar should be invested for maximum return, and it doesnt matter where it came from, but on the other hand, there are decisions to be made about going out and getting more capital above and beyond your retained earnings (i.e. debt or equity financing). That money comes at a much higher price, so the return on it has to justify the cost. To put it in terms of an individual rather than a company, the decision to take out a mortgage to buy a house is connected but somewhat different than the decision of where to spend or invest your salary dollars. The mortgage is a loan that comes at a cost (the annual interest), yet it enables you to do something (buy a house)that you could not have done out of your earnings. So, many people choose that the return on owning a home (whether financial or otherwise) justifies the decision to seek out a source of capital beyond their earnings, even though that capital comes at a cost.