Part 4: Financing
Most of you will have come across the expression ‘it takes money to make money’. In business, this proves true more often than not.
To start your business, you will need capital. Depending on the type of business, you may need it for your initial stock of inventory, for equipment or for working capital. However, not everybody has access to the potentially large sums of money required to start a successful business. One option to overcome this issue is to obtain finance.
Obtaining finance can come with its own set of hurdles, the first being convincing a lender, i.e. a bank, that you are not a risky investment. Before the global financial crisis this was less of an issue, but banks and other financial institutions have subsequently tightened their lending criteria and have taken a more risk adverse stance.
Commonly a certain level of equity will also be required; again unfortunately ‘it takes money to make money’. However this does not have to be in the form of cash, instead it may just be the equity you have built up in your house or other personal assets.
This leads us onto an important question, do you want to risk your personal assets? I can’t answer this for you, but in starting a small business it may be your only option. You can of course borrow money (or equity in the form of a guarantee) from family and friends, but this comes with its own issues.
Finance can come in many forms, including commercial bills, an overdraft, trade finance or equipment finance. It is important to match the type of finance to your particular business need, with consideration to your projected cash flows, level of risk and form of equity.
That brings us to the end of this four part series on becoming a business owner. We have covered starting a business, writing a business plan, budgeting and now financing. I hope these articles can contribute in some small way to your future success!
Click here to read part one, part two and part three.
By LUKE AYLING, MANAGER, CORPORATE ADVISORY
Luke manages a team of Corporate Analysts at William Buck and specialises in businesses strategy and growth. His infectious enthusiasm is not only evident in his personality, but also in his work.