Financing a Business

Written by John Mussi


Financing a business can often be perilous if not approached with caution. Although bad management is commonly given asrepparttar reason businesses fail, inadequate or ill-timed financing comes a very close second. Whether you're starting a business or expanding one, sufficient ready capital is essential. But it is not enough to simply have sufficient financing; knowledge and planning are required to manage it well. These qualities ensure that you will avoid common mistakes like securingrepparttar 137222 wrong type of financing, miscalculatingrepparttar 137223 amount required, or underestimatingrepparttar 137224 cost of borrowing money.

Before inquiring about financing, ask yourselfrepparttar 137225 following:

Are you sure that you need more capital?

Can you better manage existing cash flow?

How do you define your need?

Do you need funding to expand?

Do you need funding as a cushion against risk?

How urgent is your need?

How great are your risks?

In what state of development isrepparttar 137226 business?

For what purposes willrepparttar 137227 capital be used?

What isrepparttar 137228 state of your industry?

Is your business seasonal?

How to Finance a Business

Written by John Mussi


How to finance a business is one ofrepparttar main concerns that every new business person has to resolve. There are two main ways of financing a business, equity financing and debt financing.

The majority of start-up or small businesses use limited equity financing. As with debt financing, additional equity often comes from non-professional investors such as friends, relatives or colleagues.

However,repparttar 137221 most common source of professional equity funding comes from venture capitalists. These are institutional risk takers and may be groups of wealthy individuals or major financial institutions. Most specialise in one or a few closely related industries.

Venture capitalists are often seen as deep-pocketed financial benefactors looking for start-ups in which to invest their money, but they most often prefer three-to-five-year old companies withrepparttar 137222 potential to become major regional or national concerns which will return higher-than-average profits. Venture capitalists may scrutinise thousands of potential investments each year but only invest in a few.

Different venture capitalists have different approaches to management ofrepparttar 137223 business in which they invest. They generally prefer to influence a business passively, but will react when a business does not perform as expected and may insist on changes in management or strategy. Relinquishing some ofrepparttar 137224 decision-making and some ofrepparttar 137225 potential for profits arerepparttar 137226 main disadvantages of equity financing.

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