Sources of Funding for a Business Venture - Free Essay Example

In every business, there is need for funding to ensure a stable running of the business. Before coming up with any form of business, all aspiring business people need to look for a stable source of income to put in place all the required things for the running of the business. Starting any business without a stable capital might lead to the collapse of the business in a very short time. The most important thing that potential businessmen should do before considering any source to fund their businesses is to ask themselves some few questions such as; how big is my market? What is the time scale for the business the required profit? What type of return is expected on a given venture? Individual or personal finances are a major source of funding a business venture. People come up with business ventures at different stages in their lives. Some business people start organizations at the beginning of their careers. Most of the entrepreneurs start operating companies much later in their lives with personal assets that will use in financing their business activities. It is vital for entrepreneurs to invest their individual savings in business ideas because it shows that the entrepreneur is confident on his idea. By doing so, the business man encourages other to consider the idea more seriously. Lack of feasible business ideas makes investors lose everything (Jennings 800). Debt financing is another source of funding a business venture. This involves the process of raising capital from banks by the investors. Commercial banks mainly provide such form of debts to companies willing to start operating the business. Business loans are made by bankers through term loans, credit lines and mortgages. A line of credit debt is the biggest amount that a borrower can access at any given time from the bank. In this context, borrowers need to work with the bank early so as to be able to get the line of credit before the organization needs the funds because if th e lending institutions have no idea about their clientacirc;â‚ ¬Ã¢â€ž ¢s investment particulars, they will not accept credit. Efforts to get line of credit load instantly are mainly in effective. In addition to these services, lending institutions provide a five to ten year term finances that are used in funding the equipments. Due to the economic advantages that extend beyond one year when by investing in equipment, banks are mainly open to the idea of providing money to investors to buy equipment that will generate income. The revenues should match the interest that is going to be earned from such funding. Equity financing can be used to fund business ventures also. This mode of funding transfers the risk from the entrepreneur to the investor himself. In this process, entrepreneurs can contribute funds by selling preferred stock to investors. This means that the entrepreneur sacrifices some of his voting legalities to the investor. Although many organizations offer equity fi nancing, the venture capital that belongs to the institution makes the biggest part of equity financing. Government funds can also be used to run the venture. Most of the successful business ventures have received grants and guarantees from the government. The government should see the investment as a component in the development of the economy. Any form of funding or financial aid by the government means that the same government is committed to the economic development of the country. Another reason why the venture should agree to be funded by grants is because of the mutual benefit that will exist between the government and the organization. The government plays a major role in making sure that the business succeeds without any form of obstacle in their way. Another reason why the venture should consider accepting the grants from the government is because of the employment opportunities that will create for its citizens. This will lead to improved living standards for the citiz ens and a positive growth in the economy (Fiore 200). Equity financing is involving investors in the process of entrepreneurship. In this case, the investors have a say in the business venture. The investors are entitled to voting rights and other legal requirements. Equity financing is something that should be considered by entrepreneurs. Comparing equity financing and loans, it is necessary that entrepreneurs first consider the right form of funding the venture. Before using any of these sources, it is important that the entrepreneur understands the basics behind the process. Loans are preferred by most of the people who are willing to come up with a venture business venture. The reason why loans are preferred is because the legalities are not transferred from entrepreneurs to investors. The transfer of legalities from entrepreneurs to investors in equity financing has led to fear by entrepreneurs to start business using equity financing. Also, equity financing is perceived by most entrepreneurs a form of exploitation rather than investment. The idea of the new venture going public immediately is not wise. The investment needs to establish itself first before it considers going public. By going public, it means that the investment must have fully established itself well to an extent of staring to list its stocks in the stock exchange. Those companies whose stocks are listed at stock exchange have established themselves well and have a lot of market connections. It is hard for new investments to list their stocks in stocks market because they will face stiff competition from the already established firms. Initial public offers by new business organizations have made such ventures to operate at losses and finally end up closing. It demands that such organizations first undertake the necessary steps to make sure that it finds itself in a stable position to go public. Rushing is likely to cause unnecessary losses that will undermine the face of the investm ent. Break even analysis The insurance place Cost descriptions Fixed costs $ Variable expenses % Direct labor 1,000 10 Supplies 20,000 3 Repairs maintenance 7,000 0.5 Advertising 2,000 0.5 Rent 500 2 Accounting and legal 1000 4 Telephone 100 1 Utilities 3000 5 Insurance 5000 2 Interest 6000 3 Depreciation 2000 4 Debt payment 8000 2 Owneracirc;â‚ ¬Ã¢â€ž ¢s draw 1000 2 Total fixed expenses 56,600 Total variable expenses 40 % Break even sales level 22, 640 Fixed costs are permanent costs regardless of the number of items sold. All the start up costs like rent, debt etc are considered fixed costs. On the other hand, variable costs are recurring costs that a business man absorbs with every unit sold. As the business and sales grow, one can start appropriating labor together with other items as variable expenses if they make sense in t he business.