Steps for Financing Your Business
Here are the steps on how can you start your business right. Know how you can assure a win-win status and build a profitable relationship with your investors.
Financing a business is a tough job and a better way to start it is to have a turnkey business plan. Only by having this can either a start-up business or an existing in need for additional funding attract potential source of finance.
For start-ups this is the only tool that will determine the value or the capability to pay of their soon-to-rise business; whereas for an existing business eyeing expansion or for assisting cash flows, business plan is still a major determinant for it foretells the future of the business along with its current status.
After having a defined business plan, you can now go into the details of the possible means by which you can fuel the business. All businesses require finance, be it for starting business, for funding expansion, or for assisting cash flow.
Traditionally, for existing businesses, internal sources are the most preferred and it could be the company’s assets, savings, or profits.
For non-ownership capital, funds are raised from lenders such as banks and creditors. This is common to starting business. An example of this is a loan. It is a fixed amount of money borrowed from a bank for a fixed period of time at a predetermined interest rate.
Banks offered also an overdraft facility where the business can withdraw money, up to an agreed level, from their account even when there isn’t any money in the account.
Own savings may be used when setting up a business. This method is suitable for sole traders. It is easy to arrange, but may not provide sufficient fund. Family and Friends may be suitable for sole traders also, small proprietorships, and private limited companies. The amount of money available may be limited.
Trade credit is offered by most businesses. Goods may be taken or delivered with the payment due 30 days later. The number of days depends on the agreement.
In choosing the right funding source for the business, take into consideration some fundamental factors that could affect the effectiveness of your choice in the long run.
First is the type of your business and the amount required which dealt on the immensity of the funding needed. A solely traded business does not of course need ownership form of capital that resort to stockholders equity funding.
The length of the time required before you can possibly repay the debt also affects the decision. Loans are advisable for long term while overdraft is for short term.
On the whole, weight the risk of whatever action you are to take. And also, remember that looking out for funding demands regular communication with your investors even until the company is profitable, the link is just inevitable. The choice is yours to make it a profitable lasting relationship.
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