Finance of small businesses – Find the right mix of debt and equity
Financing a small business can be a critical activity for a business owner. This can be the most important part of a business growth, but care must be taken not to allow it to consume the business. Finance is the relationship between money, risk and value. Manage each well and you will have a mix of healthy finances for your business.
Developing a business plan and a loan package that has a well-developed strategic plan, which in turn concerning the following realistic and credible financial. Before we can finance a company, a project, expansion or acquisition, you must accurately develop the needs of your financing.
Finance your business from a strength position. As a business owner, you show your trust in the company by investing up to 10% of your financial needs of your own coffers. The twenty to thirty percent of your cash requirements can come from private investors or venture capital. Remember that sweat equity is expected, but it’s not a replacement for money.
Depending on the valuation of your business and the risk concerned, the capital-component will an average of thirty-forty percent participation in your business for three to five years. Perform this position of equity in your business, but the maintenance of the clear majority will give you a leverage in the seventy percent of your funding needs.
The remaining funding may be in the form of a long-term debt, a short-term working capital, equipment financing and inventory financing. With an important position in your business, a variety of lenders will be available. It is advisable to hire an experienced commercial loan broker to make the “shopping” finances for you and present you a variety of options. It is important at this point you get finances that match your needs and structures of your business, instead of trying to force your structure in a financial instrument not perfectly adapted to your operations.
Having a strong cash position in your business, the additional debt financing will not put an undue constraint on your cash flow. Sixty percent debt is good health. Debt funding may be in the form of non-guaranteed finances, such as short-term debt, credit line financing and long-term debt. Unsecured debt is generally called cash flow finance and requires credit value. Debt funding may also be in the form of secure or asset-based financing, which may include accounts receivable, stocks, equipment, real estate, personal assets, a letter of credit and A guaranteed finance of the government. A personalized mix of unsecured and secure debt, designed specifically around the financial needs of your business, is the advantage of having a high species content.
The declaration of cash is an important finance in monitoring the effects of certain types of funding. It is essential to have a firm business on your monthly cash flow, as well as the control and planning structure of a financial budget, plan and monitor the finances of your business.
Your financial plan is a result and part of your strategic planning process. You must pay attention to your cash requirements with your cash goals. The use of short-term capital for long-term growth and vice versa is a non-no. The breach of the corresponding rule may result in high levels of risk in the interest rate, the possibilities of renewal of reintegration and operational independence. Some deviation from this old age rule is eligible. For example, if you have a long-term working capital need, a need for permanent capital can be justified. Another good financial strategy is to have tailor-made emergency capital to release your working capital requirements and provide maximum flexibility. For example, you can use a line of credit to enter an opportunity that arises quickly, then will organize less expensive long-term finances, better adapted in the long term, planning all these initiatives with a lender.