November 27, 2012
SURVEY TO SOURCES OF FINANCE AVAILABLE TO A BUSINESS
Financing is the basic element to start a business and without financing or funding a brilliant or workable profit idea or scheme is just a waste of time. To convert a business plan into a workable business it is essential that reasonable sources of funds are available for the following. * Startup Cost
* Raw Material and Working Capital
* Production / Service process
* Marketing / Sales
Raising finance for start-up requires careful planning. The entrepreneur needs to decide for the following when considering to start a new business. * How much finance is required?
* When and how long the finance is needed for?
* What security (if any) can be provided?
* Whether the entrepreneur is prepared to give up some control (ownership) of the start-up in return for investment? The sources of finance may be available for a business is one way of categorizing the sources of finance for a start-up is to divide them into sources which are from within the business (internal) and from outside providers (external).
The main internal resources can be tabulated as below but not limited to. PERSONAL SOURCES
Personal Sources are the personal financial arrangement made by the founder of the business. This can be personal savings or other cash balances that have been accumulated. It can be personal debt facilities which are made available to the business. It can also simply be the found working for nothing! The following are some example of personal financial arrangements. Savings and other “nest-eggs”:
An entrepreneur will often invest personal cash balances into a start-up. This is a cheap form of finance and it is readily available. Often the decision to start a business is prompted by a change in the personal circumstances of the entrepreneur – e.g. redundancy or an inheritance. Investing personal savings maximizes the control the entrepreneur keeps over the business. It is also a strong signal of commitment to outside investors or providers of finance. Re-mortgaging is the most popular way of raising loan-related capital for a start-up. The way this works is simple. The entrepreneur takes out a second or larger mortgage on a private property and then invests some or all of this money into the business. The use of mortgaging like this provides access to relatively low-cost finance, although the risk is that, if the business fails, then the property will be lost too. Borrowing from friends and family:
This is also common. Friends and family who are supportive of the business idea provide money either directly to the entrepreneur or into the business. This can be quicker and cheaper to arrange and the interest and repayment terms may be more flexible than a bank loan Credit cards:
This is a surprisingly popular way of financing a start-up. In fact, the use of credit cards is the most common source of finance amongst small businesses. RETAINED PROFITS
This is the cash that is generated by the business when it trades profitably – another important source of finance for any business, large or small. For example, a start-up sells the first batch of stock for £7,000 cash which it had bought for £4,000. That means that retained profits are £3,000 which can be used to finance further expansion or to pay for other trading costs and expenses. SHARE CAPITAL – INVESTED BY THE BUSINESS FOUNDER
The founding entrepreneur (/s) may decide to invest in the share capital of a company, founded for the purpose of forming the start-up. This is a common method of financing a start-up. The founder provides all the share capital of the company, retaining 100% control over the business. Business Founder may be using a variety of personal sources to invest in the shares. Once the investment has been made, it is the company that owns the money provided. The shareholder obtains a return on this...
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