Bussiness Finance

Topics: Debt, Money, Bank Pages: 8 (2666 words) Published: February 8, 2013
an introduction to business finance
When you start up in business you will need finance. Should you use your own money, borrow from family and friends, or go straight to the bank? What about invoice financing and factoring? Do you want a business angel? Understand the different forms of borrowing and choose the best financial option for your business. how much do you need?

To work this out you need a business plan. The business plan will help you work out your financial needs, including the initial start up costs and running expense. You can draw up a budget that shows your forecast sales, expenditure and – absolutely vital – your cash position for each month. Consider possible peaks and troughs in the business (perhaps seasonal) and remember that many start-ups spend more than they earn in the first couple of years. Customers may not pay you immediately but you still have to pay all your bills to keep trading. Make sure you have a contingency fund in case things go wrong. Try to have at least enough capital to cover projected expenses for at least six months – the nature of your particular business may mean you need more. types of finance

Most new businesses use a mixture of finance - savings, borrowing from friends or family, personal loans and bank borrowing. Overdrafts and fixed term loans are popular. New start-ups can also apply for grants and interest free loans and bigger businesses with good prospects might attract an outside investor, like a business angel. Raising money from shareholders may also be an option. If you are short of cash at the outset you can consider leasing and hire purchase for vehicles and equipment, rather than buying. If your business has lots of unpaid invoices you may want to consider invoice financing. All methods of finance bring their own advantages and disadvantages and you should take advice before making a decision. using your own money

You will have to invest some of your own money if you want to interest a bank in giving you a loan. If you don’t have savings you might have to get a mortgage, sell possessions or assets, or use money from friends and family. If you are relying on family and friends they should only invest amounts they can afford to lose and understand the risks. Have agreements put in writing. Generally, using unsecured loans or credit card borrowing for business start- ups is unwise and may end up crippling your business before it has a chance to get going. bank finance – loan or overdraft?

It is increasingly difficult to borrow from banks – even with a good track record. Since the credit crunch began, banks have been trying to increase deposits and are not keen to lend. Rates are high and banks are nervous about losing yet more money. So you will have to be a good risk before a bank will part with any cash. Before lending, a bank will want to see a credible business plan, evidence of a successful track record in business (this is often the chicken and egg situation for start-ups – how can you establish a good track record without borrowing money to start?). You will have to offer security for any money lent (either business assets or personal guarantee) and you will have to show commitment by investing your own money as well. Increasingly banks expect you to invest larger percentages of your own money before they will commit. If they will commit at all. overdrafts

These are very useful for financing temporary or fluctuating cash shortages and are generally a flexible way of funding day to day requirements. Interest is paid only on the amount you are overdrawn each day. But they have higher interest rates than loans, and exceeding your overdraft limit is costly. In theory, the bank could demand repayment any time – even 24 hours notice. loans

Loans are often the best way to finance a longer term business needs. They are usually fixed for one to ten years (although mortgages and some other loans may be for as long as 25 years). Repayments are agreed in advance...
Continue Reading

Please join StudyMode to read the full document

You May Also Find These Documents Helpful

  • Finance Essay
  • Essay about Questions and Answers: Personal Finance
  • Behavioural Finance Term Paper
  • Essay about finance
  • Corprate Finance Essay
  • Sources of Finance Essay
  • Essay about Finance and Company
  • sources of finance Essay

Become a StudyMode Member

Sign Up - It's Free