Business Finance – Strategic Planning

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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:

o Bank loans

o Credit cards

o Overdrafts

o Leasing

o 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.

Source by Helen Cox

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