Business Core · Finance · Module
Funding and capital
Where the organisation’s capital comes from, on what terms, and what each source asks in return. Funding is a set of relationships as well as a balance.
The idea
How it works
Modigliani and Miller showed that, under idealised conditions, the mix of debt and equity does not change what a business is worth. The conditions never hold — tax, the cost of financial distress and unequal information all intervene — and their result is better read as a checklist: whatever makes the mix matter in a particular business is one of those departures, and it can be named.
Myers and Majluf explained why organisations tend to use internal funds first, then debt, and new equity last: outside investors know less than managers, and issuing shares signals what managers believe about the price. The practical consequence is that every external source carries terms that outlast the reason it was raised. This module owns the choice of source, the resulting structure and the obligations to capital providers. How long current cash lasts is measured under Cash flow; how investors are kept informed belongs to Reporting in Stakeholders; what the money is committed to is judged under Investment appraisal.
Working with it
In practice
- 01
Start the raise from the runway
A raise takes months. The date that matters is when the runway falls below the time a raise takes, plus a margin for it going slowly.
- 02
Compare sources on terms as well as price
Interest and dilution are the visible costs. Covenants, consent rights and personal guarantees are the ones that constrain later decisions.
- 03
Keep every provider’s rights in one register
Lenders and investors each hold rights of some kind. Listing them together prevents a decision being taken that one of them can block.
- 04
Hold a target mix, with a reason
A stated view of how much debt the business will carry, and why, turns each funding decision into a comparison against something.
One level in
The components of funding and capital
A component is something that exists afterwards which did not exist before — a deliverable or a mechanism, not an intention.
Funding plan
How much capital is needed, by when, for what, and which sources are being compared.
LearnCovenant and rights register
What each capital provider can require, restrict or trigger, with the current headroom against each.
Learn
Begin a raise while the runway is still longer than the raise will take. Capital sought under pressure tends to arrive on the provider’s terms.
The other modules in finance
Budgeting
Allocating money to intentions for a period ahead. A budget is a set of decisions expressed in numbers, not an administrative exercise.
LearnForecasting
A current estimate of where the numbers are heading, updated as the world changes. Distinct from the budget, which is a commitment.
LearnCash flow
Money actually moving in and out, by date. Profitable organisations fail here, which is why it is tracked separately from profit.
LearnFinancial reporting
Turning transactions into a statement of what happened, for people who have to decide something on the basis of it.
LearnInvestment appraisal
How proposals to commit capital are judged before approval, and compared afterwards with what they actually delivered.
LearnTax
Tax as a consideration in strategic decisions — where the business is taxable, how structure and cross-border flows affect it, which incentives apply, and the conduct the organisation has chosen.
Learn