Whether you are starting up your business or expanding it you will need finance in order to do so. This is especially relevant to new businesses that are just starting up. There are numerous avenues that you can approach in order to gain this start up finance and there are many different forms of it open to you; choosing the right finance that will benefit your business most is the important thing.
There is a saying that states ‘it takes money to make money,’ this applies so much to new business ventures. For your business to become a success you will need a large amount of money to start off with that can be used to get your business set up. This money will be used to buy equipment, pay the rent on your business property, employ your staff and ensure that you have enough stock to get your business going as well as being used to pay the first few months of all your bills.
Two of the main reasons why many new businesses fail to get anywhere beyond the starting point are due to inadequate business capital and poor management skills, which is why raising money is so important in the early start-up stages of business.
Some ways in which people choose to fund their business idea is by using savings, but realistically not many of us have that sort of cash tucked away, which is why we require outside help. You could opt to borrow money from friends or family if they have the financial resources to help you or you could take out a credit card for the specific use of funding your business. All of the financial options that are open to you can be split into two sections, either debt finance or equity finance. Debt finance is classified as being money that is borrowed from varies different aspects. This is finance that is required to be paid back.
Some examples of debt finance include:
• Bank loans
• Credit cards
• Overdrafts
• Leasing
• Asset financing
All of these are the borrowing of money in one form or another and they will require monthly repayments that will have added interest. Most people however use their bank as the first call of gaining start up finance regardless of the fact they are going to end up paying more money back.
There are disadvantages and advantages of using a bank loan to fund a new business idea. However the disadvantages of having a bank loan to fund your business start up far out-weigh the advantages. The benefit of using a bank loan for business finance include being able to organise a repayment holiday meaning you only have to pay interest for a certain amount of time and you don’t have to turn over a share of your profit. The disadvantages however are that bank loans have strict terms and conditions and can cause cash flow problems if you are unable to keep up with your monthly repayments. Also bank loans are often secured against assets and you may be charged if you decide you want to repay your loan before the end of your loan term.
The other form of finance; equity finance, is often more overlooked than it should be when in fact equity finance could be just the answer that your business is looking for. The main forms of equity finance come from business angels and venture capitalists. Equity finance is money that is invested into your business in return for a share of the business. With equity finance the advantages out-weight the disadvantages and equity finance is a lot more helpful to small businesses than bank loans are.
Some of the advantages of equity finance include your investor being committed to your business and intended projects, they can bring valuable skills, contracts and experience to your business and they can assist you with strategy and decision making as well as often being prepared to follow up funding as your business grows. Two disadvantages of equity funding are your business may suffer as you are spending time securing your investor deal and the investor will own a share of your business.
The one thing that you must do when choosing your business start up finance is to use a finance option that is most suited to your business needs.
By: Helen Cox
Posts Tagged Avenues
When it comes to gaining funding for your business there are a number of different places and avenues that you can approach but the one that you actually choose to use will be based on your business needs. Some examples of the places that you can turn to in the hope of gaining the business finance that you need are bank loans, family/friends, credit cards, overdrafts and investors. These are only a handful of the finance options that are open to both start-up businesses and established businesses; however in some cases many businesses often choose to use a combination of many different sources of finance in order to cover all of the expenses.
It can easily be said that many new businesses will exhaust the internal financial resources which are needed and used to get your business off the ground during the initial start-up phase. It is because of this that new businesses will then seek additional capital in order for them to continue to grow. The statement it takes money to make money is also never more relevant than it is when it comes to small businesses. This is due to the fact that every small business needs money to get started, operate and expand as well as to grow.
If you are a start-up business and you are at the point where you require outside finance you must clearly identify the purpose of your business finance. The start-up finance that you gain for your business is generally acquired so that you can gain assets for your business. These assets are used to help your business achieve its profit making objectives.
When you start to look for ways of raising business finance you should have calculated roughly how much money you are going to need in order to cover all of your business start-up expenses. By doing this you have a better chance of getting the business finance that you want and that you require. Once you have gained a rough estimate of how much money you are going to need for your business start-up in order to get your business off the ground you can start to think about the various avenues that you are able to approach as a way of securing your business finance.
However when it comes to business finance there are only really two words that you need to consider, these are debt or equity. Debt finance, for example, comes in the form of bank loans and credit cards. Debt finance is money that is lent to your business. It will cover all of your business costs but you are required to pay it back. You will have to repay debt finance on a monthly basis with added interest. Before you agree to take out debt finance it is important that you are able to keep up with the monthly repayments. To find this out you should investigate your expenditure and ensure that you will be able to keep up with the payments sufficiently.
The second word that you need to know is equity. Equity finance is money that is invested into your business for a share of your business. You don’t have to pay this money back at any point within your business but it does mean that you lose an aspect of control over your business.
Within every business there are five main components that are needed in order to ensure that your business operates successfully. These components are Personnel, Equipment, Housing, Products & Services and probably most importantly Capital. Without capital all of the other components wouldn’t exist within your business.
By: Helen Cox
Tags: Assets, Avenues, Bank Loans, Better Chance, Business Finance, Credit Cards, Different Places, Family Friends, Finance Options, Financial Resources, Handful, How Much Money, Investors, New Businesses, Overdrafts, Rough Estimate, Small Business, Small Businesses, Sources Of Finance, Start Up Business