How to Finance a Business
As often happens, the money available for the entrepreneur does not cover needs no reason to even bring up the project. Or a part of is non-monetary contributions (machinery, etc.) So that not all capital “begins in the bank.” You have to get more money.
Leaving aside the contributions of purely capitalist partners and the particular case (and almost science-fiction) of venture capital, entrepreneurs or as specifically, the company is left with only the possibility of obtaining funding from third parties.
The resources of others, unlike the capital, must be returned within a specified period and almost always with the additional payment of certain interests. These resources are available short or long term. Thus, the external resources obtained in the short term should be returned more or less immediately, probably within the current year or within a few months. The long-term resources allow time delay repayment of capital, although of course paying a larger amount of money in interest.
There are two main sources for obtaining external resources:
* Suppliers
* Financial Institutions
* And there is yet a third “semi-source” funding in grants administration.
The first source of funding is in the same suppliers of the company. In the same way that customers can be a source of funding requirements by not paying in due time, providers can “make money” if we pay them a little later. During the (brief) period of time, the company has benefited from money in the form of goods, or have been lucky to sell for cash. Obviously this is short-term financing, if not the very short term (we can speak of two, five, 15 or 60 days, for example).
Obtaining credit from suppliers can vary widely from sector to sector. In areas of retail distribution can be very difficult to fill a store without a first aid from wholesalers or manufacturers of products. In other sectors, until they have spent months or even years of unblemished reliability in payments to suppliers, it is simply impossible to obtain funding from the suppliers.
The second source of funding comes from the hands of “professionals.” Financial institutions, although sometimes not enough, are intended to provide funding in return for some interest on borrowed capital. However, these agents are essential when seeking long-term funding without having to resort to a capital increase.
In the long-term funding, banks will find that the company is able to continuously generate sufficient resources to repay principal and interest agreed. In the short-term financing, too.
Normally, long-term financing is used for the same term investments, such as facilities, machinery, etc. but will rarely give us the funding to start the business venture while still not been shown the ability to repay the installments stipulated. Here you can play an important role a professional entrepreneurial team with a good business plan (although make no mistake, your project probably is not in Silicon Valley).
These institutions also play an important role to finance short-term periods of low activity or the specific needs cash. Maintaining good relations with the bank and a good payment history is essential. And above all, an excellent cash planning. Banks usually do not trust much of an entrepreneur who comes to seek funding to weeks considering that his company collapses for lack of money.
Correctly managing income and short-term payments can be the difference between staying in business or having to quit. Many companies that go beyond the creation stage die in the first years of his life not knowing the proper management of their financial needs. Many times as the company starts to go well and that we already know that asking for more money.
If there is a healthy way of financing a business is based on their own resources generated by the operation of the business.
At least theoretically, revenues should cover expenses and depreciation and leave a benefit to the company. This benefit can be distributed to the shareholders in payment of its share capital. However, it is highly recommended to reinvest these profits in the business itself to meet future (or present) financial needs.
Interestingly, if a company is able to comfortably generate their own resources will not too many problems in obtaining external resources, and vice versa. It’s like borrowing money for new car: if you can pay cash the car is almost certain that the bank will also leave you the money to pay in installments.
In short, it is well to have enough capital to start the business, is well aware of the various types of financing in the short and long term, but there is no better way to finance that have healthy revenue regularly.
So it is more important to spend time and effort to create a strong business not to try to get a grant that may never arrive. Moreover, some entrepreneurs start up your project only when they have clients or projects to ensure its operation, although it also tends to be exceptional.
To sum up: money does not buy happiness, I agree, but it helps to create companies. And most importantly, helps keep them running.
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