A Guide to Successful Business Finance

1. A Guide to Successful Business Finance From purchasing land to set up a production unit to inventory for retails, everything takes investment. Moreover, one has to proceed with caution about business finance as a single mistake can cause the decline of a business. The first thing that a businessperson should consider before moving forward with steps required to accumulate the capital is the sources. Where can he get the money? Of the several sources of finance available, they can be categorised into external and internal sources. Internal sources of capital can be owner’s capital. This includes equity, deposits, and loans. If there are partners involved, then the money that they bring in will also be included in internal sources of funds. Another way of raising money from internal sources is by taking loans on personal assets or mortgage loan, provident fund, and other investments that the owner might have made prior to starting the business. Businessmen getting money from selling their personal assets is also an internal source of finance. External sources of business finance refer to the capital that is raised through business loans from various financial institutions. A businessman must be careful about choosing the sources of finance. It needs a proper estimation of the costs involved in starting the business. The capital required for running a business includes short term and long-term funds. A business needs funds to keep operating on a daily basis. As an entrepreneur, you will have to pay electricity bills, wages, purchase inventory, etc. All this comes under short-term capital funds. One can get short-term funds from commercial banks, public deposits, factoring, bill discounting, bank overdraft etc. There are small business loans Australia lenders provide to aid small businesses, which is also one of the ways many people start their venture. The long-term funds include investments made on fixed assets such as production equipment, land, employees etc. The best sources for long-term funds include shares, debentures, profit retention etc. Once the estimation has been done, the businessman has to consider the cost of capital. How much will raising the funds cost? This means the money that will be securedlending.com.au

2. required to get the funds. For example, a loan has its own costs in the form of interest and fee, which the borrower has to pay in order to get the money. Therefore, an entrepreneur has to make critical decisions about the sources of finance. From the many sources at his disposal, which one should he approach? Should he borrow from one source or consider multiple sources. The cost of borrowing will vary depending on the sources. The conditions for eligibility and procedures will also vary. Hence, a businessperson should proceed with caution, as every source will have its benefits and drawbacks. The objective should be to plan the business finance in such a way that the total cost of capital is minimized. Once he has made proper estimation about the long term and short-term funds, circled in on the sources, and decided how to go about it, can he proceed with the accumulation of funds to finance his business venture? securedlending.com.au