“When I grow up, I want to be a successful businessman!” How many times have we heard little children say this? Believe it or not, this dream still eludes many adults today. So, what could be the cause of this unfulfilled dream? Financing, whether we are talking about a $50 start-up or a $1Million expansion plan, Business Financing can translate this vision into actuality.
So, who can get their business financed? Anyone…for as long as you know where to look. You see, every successful business reaps great benefits to so many people, not only to the business owner. It is for this reason that feasible business proposals are closely looked at with interest by many possible investors. They know that if the business succeeds, they, as the investors will reap the benefit too. In macro view, the addition of a new product or service, as well as jobs, in the community are considered important benefits as well.
The first step in your search for business funding is first determining how much you need. Money requirements basically include office space rental, office equipment, office supplies, insurance, utilities, maintenance, advertising, labor, business licenses, raw materials, etc.
Once you have collated all these budget figures, it is suggested that you work with your accountant or your bank institution to help you prepare a realistic sales projection for your initial year of operation. This will determine your cash flow on a monthly basis. The key word, however, is realistic. There is no sense in fooling your investors, and even yourself, in the long run. Be honest and get the rightful amount of financing you require.
The next step is deciding what type of financing is preferred — debt or equity financing?
Debt financing may first appear as a better choice. Reason being that the lenders will not have any influence over the operation or profits of the business. Their interest is limited to getting paid back in a period of time. The downside, apart from it is hard to find, is that you get pegged down to a periodic settlement of a fixed amount, regardless of how your actual cash flow is performing.
On the other hand, equity financing does not require a stiff settlement of dues. The equity investor has more interest and gives more leeway in growing the business. Not only does the equity investor allow more flexibility, he also provides advice and business contacts to help ensure the business triumph. Unfortunately, in equity financing, the investor also becomes an active player in the business, making his opinion count in every major decision to be made. This requires regular consultation with the partners and needs advice from accountants and lawyers with much paperwork.
Although many businesses start off with debt financing, especially for small businesses, a combination of both debt and equity financing is bound to be considered as the business grows.
Regardless of the type of financing you decide on, keep in mind that there are a lot of sources for funding — private sources (e.g. banks, friends, family) and public sources (e.g. federal government). So, good luck and make your business dream into reality!