Once one decides to start a business, there are a lot of things to consider. One of the first things that will be needed is capital. There are several options when raising capital, some are high risk others are stable. How a business owner chooses to raise capital will depend on what type of risk they want to take and how much capital the firm needs.
Raisings Capital for Business
Whether you are just starting out, or you have been in business for years there is one truth for every business, they all need to raise capital. One piece of advice I would start off with would be to do your research before venturing out.
Debt capital is a common method of raising capital, especially for new start ups and small business. Debt capital simply put is funds that are borrowed. Debt capital is also optimal when a firm wants to acquire a new investment. We are in a time where sources of money are all but endless in comparison to twenty years ago prior to the internet boom. Prior to the rise of the internet options for raising debt capital were restricted to mainly traditional banks and money lenders. Debt Capital is fairly quick and easy to obtain, especially just starting out which is the key benefit of raising capital this way (Sherman, 2012).
The major disadvantage of debt capital is that you now owe money. It may seem pretty obvious; if you borrow money you will then owe the money. Interest rates and the cost to borrow can change rapidly as demand in the economy changes. Not only can increases in demand raise interest rates rapidly, inflation caused by devalued money can cause interest rates to skyrocket. The business owner may end up having more debt than they planned for (Home Business Magazine, 2013).
Equity capital is another option...
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...ns are vast. From start up loans, equity and stocks and bonds obtaining capital requires good planning. Learning the difference in the choices available will help you become an astute investor. With apt financial planning, it is possible to manage a successful and profitable business
Works Cited
How's Your Financial Brainstorming Going?. (2013). Home Business Magazine: The Home-Based Entrepreneur's Magazine, 20(3), 10.
Jung, C., Shambora, W., & Choi, K. (2010). Are stocks really riskier than bonds?. Applied Economics, 42(4), 403. doi:10.1080/00036840701704386
Sherman, A. J. (2012). Raising Capital : Get the Money You Need to Grow Your Business. New York: American Management Association
SMITH, O. C. (1994). WANTED: THE RIGHT INVESTMENT BANKER. Financial Executive, 10(6), 14-18.
Waschka, L. (1999). The Complete Idiot's Guide to Getting Rich. New York: Alpha Books.
Capital allocation. Every dollar you raise and spend should produce more than $1 of return for the company, or it’s a waste of money. Learn how to make these judgements.
Based on the Consolidated Statements of Shareholder?s Equity, year ended September 2015, in page 71, as shown in the statement, there are no preferred stocks.
Ross, S.A., Westerfield, R.W., Jaffe, J.F., & Roberts, G.S (2001) Corporate Finance. 3 th ed.Toronto, McGraw-Hill Ryerson.
Target Corporation: Report on Long-term Financing Policy and Capital Structure with an Acquisition Analysis Introduction This report will be based on the Target Corporation, and will consist of two sections: 1) long-term financing policy and capital structure, and 2) an acquisition analysis. The first section will include: Target's most recent long-term financing decision; an analysis of the economic, business, and competitive background in which the financing occurred; Target's book value and market value; possible changes that would occur to Target's finance policy and capital structure if it was forced to consider re-organization and bankruptcy strategies; and finally discuss Target's international investment and financing opportunities, as well as foreign exchange risks. The second section will be a report to the board of directors that identifies a synergistic acquisition candidate for Target.
2.in other case, if he thinks of starting this business as a broader venture , he needs to raise capital
... Capital, Corporation Finance and the Theory of Investment", The American Economic Review, vol. 48, no. 3, pp. 261-297.
Adelman, P. J., & Marks, A. M. (2010). Entrepreneurial finance. (5 ed.). Bedford, Texas: Prentice Hall.
Debt capital refers to money borrowed. Examples of this include bonds and short-term commercial paper. Bonds are more widely used because it provides a company with years to come up with the principal while paying interest only. Bonds are rated (i.e. AAA, AA, BB, etc.), these ratings correspond to the risk of default. The higher the rating, the lower likelihood of default and therefore a lower interest rate accepted by the lender. Short-term commercial paper is typically...
All business activities require finance to establish itself physically in a location and to fund daily activities of the business. This money can be acquired in two ...
To start a new business and remain in business profitably, many critical decisions must be made when the foundation of a new business is formed. These decisions affect the company in the long run and often make or break an organization. Methods of inventory control and capitalization policies are among these critical decisions that will affect any business bottom line.
Research on the Sources of Finance for a Business Firms sometimes need to raise finance for Working Capital and Capital Expenditure. Explain what each is and give examples. · Working Capital (or Revenue Expenditure) The working capital is made up of the current assets net of the current liabilities. It is vital to a business to have sufficient working capital to meet all its requirements. Many businesses have gone under, not because they were unprofitable, but because they suffered from shortages of working capital.
The capital structure of a firm is the way in which it decides to finance its operations from various funds, comprising debt, such as bonds and outstanding loans, and equity, including stock and retained earnings. In the long term, firms seek to find the optimal debt-equity ratio. This essay will explore the advantages and disadvantages of different capital structure mixes, and consider whether this has any relevance to firm value in theory and in reality.
financing. They are often comparatively modest, in-order to help the founders get on their feet, build
There are also a few cons in accounting for these instruments are either debt of equity. "Excessive debt financing may impair your (the company's) credit rating and your ability to raise more money in the future (Financing Basics, 1). If a company has too much debt, it could be considered too risky and unsafe for a creditor to lend money. Also with excessive debt, a business could have problems with business downturns, credit shortages, or interest rate increases. "Conversely, too much equity financing can indicate that you are not making the most productive use of your capital; the capital is not being used advantageously as leverage for obtaining cash" (Financing Basics, 1). A low amount of equity shows that the owne...
As we start our business, and even our business moves along, we will constantly need to concern ourselves with financing our business. Financing concerns begin with the start-up costs and then continue with business expansion and new product development. When we look for outside financing, one of the first things the investor will want to see is our business plan. Private investor, banks or any other lending institution will want to see how our plan on running our business, what our expense and revenue projections are whether or not our plans for the future are attainable with the business we have created. All of this can be answered by a well-written and thorough business plan.