Читать книгу Finance Basics - Stuart Warner - Страница 7

The majority of businesses need money to get started. The ability to raise finance is essential to the initial and ongoing success of a business. A lack of finance is one of the main ways that businesses fail.

Imagine you about to start a new business that requires $1 million initial investment. Let’s say this money is needed for premises, a motor vehicle, computer equipment and goods to sell. If you don’t have $1 million, where can you get the money from?

Most entrepreneurs will initially invest their own money when starting a new business. This is known as ‘share capital’ and for limited companies the owners are called ‘shareholders’. ‘Share capital’ is sometimes referred to as ‘equity finance’.

If more money is needed, there are three main options:

1 Raise further equity finance. Ask existing shareholders for more money or find investors who wish to become joint owners/shareholders of the business and contribute to the share capital. As these investors will become joint owners of the business, they will have a say in the running of the business. They will also expect returns on their investment in the form of dividends.

“Never spend your money before you have earned it” Thomas Jefferson, 19th-century American President

2 Borrow money. Typically from a bank or family and friends. This is known as ‘loan finance’ or ‘debt finance’. It is a common route for shareholders who don’t want to share ownership of their business. Equity finance does not have to be repaid, and dividends to shareholders are discretionary. Loan finance, on the other hand, needs to be repaid and will incur interest costs.

3 Use surplus cash generated from operating activities. See Secret 4.5 for more on this. The surplus cash must not have been paid as dividends to shareholders or committed elewhere in the business.

There are many other alternative sources of finance for a business. Examples include leasing assets (as opposed to purchasing assets outright), government grants and even sponsorship. Reading a company’s financial statements should reveal where they have got their money from (Secret 2.5).

A successful financing strategy is just as important as a successful business strategy.