Good Morning and Welcome to Finance Friday’s with Baron BSmart Howard. Wouldnt you love to have a few million dollars to start or expand your business? Me too! With a great idea and a great business plan, you feel that you should be entitled to get the funding youre seeking from loans and investors. The reality is that for most entrepreneurs, they must prove their concept first before anyone will put up that kind of money. When exploring your funding options, there are several factors to consider: Are the business needs short-term or long-term? How quickly will you be able to pay back the loan or provide return on their investment? Is the money for operating expenses or for capital expenditures that will become assets, such as equipment or real estate? Do you need all the money now or in smaller pieces over several months? Are you willing to assume all the risk if your company doesnt succeed, or do you want someone to share the risk? The answers to these questions will help you prioritize the many funding options available. Fundamentally, there are two types of business financing: Debt financing - You borrow the money and agree to pay it back in a particular time frame at a set interest rate. You owe the money whether your venture succeeds or not. Bank loans are what most people typically think of as debt financing, but we will explore two other options below. Equity financing - You sell partial ownership of your company in exchange for cash. The investors assume all (or most) of the risk--if the company fails, they lose their money. But if it succeeds, they typically make much greater return on their investment than interest rates. In other words, equity financing is far more expensive if your company is successful, but far less expensive if it isnt. Because investors take on a much higher risk than lenders, they are typically far more involved in your company. This can be a mixed blessing. They will likely offer advice and connections to help grow your business. But if their plan is to exit your company in 2-3 years with a substantial return on their investment, and your motivation is the long-term sustainable growth of the company, you may find yourself at odds with them as the company grows. Be careful not to give up too much control of your company. Self financing-Now, there is a third concept that most often any blog, infomercial, advertisement via TV or social media never ever really highlights. That third option is the power of developing multiple income streams. I tutored a young lady who was majoring in and business management and entrepreneurship with a local university. In the forum, the young lady was asked how would she develop or raise finances for a business pursuit in a business and finance course. Per our discussion she mentioned this concept along with a plan of action. According to the young lady, not only the class but the instructor was blown away by this concept. The million dollar point…we do not have to go in a massive debt to start or emerge into a small business. Please tune in tomorrow as I will discuss the power and value in developing small income streams. Need information now? Inbox me today for an assessment. And don’t forget, it’s time to BSmart about everything you do!
Posted on: Fri, 01 Nov 2013 13:06:51 +0000
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