MGT 3806 Chapter Notes - Chapter 6: Quick Ratio
Part 2: Financing The Small Business
SMALL BUSINESS FINANCING
Management problems affecting financing
– underestimating financial requirements
– lack of knowledge of sources of equity and debt capital
– lack of skills in presenting a
proposal for financing
– failure to plan in advance for
needs
– poor financial control of operations
The entrepreneur often require financing not only to start the business but also to
provide capital to fund ongoing operations
The Importance of Capital and Planning
– How much do you need ?, When will the funds be used ?
– How long will the money last ?
– Where can the money be raised and what type of financing (debit versus equity)
will be used ?
– Do you need funds immediately ?, Will I get anything else besides money ?
DETERMINING THE AMOUNT OF FUNDS NEEDED
Start-up Costs
– initial inventory
– First few months of:
▪ Payroll
▪ Utilities
▪ Rent
– Initial Advertising
– Prepaid items (deposits, rent and insurance)
– License & Permits
DETERMINING TYPES OF FINANCING
Business Stages and Financing
– The type (equity & ownership) of financing entrepreneurs can access is usually
dictated by the stage the business is in and the type of opportunities the
company is pursuing
▪ Startups
▪ Ongoing concerns
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Document Summary
Underestimating financial requirements lack of knowledge of sources of equity and debt capital lack of skills in presenting a proposal for financing failure to plan in advance for needs. The entrepreneur often require financing not only to start the business but also to provide capital to fund ongoing operations. First few months of: payroll, utilities, rent. The type (equity & ownership) of financing entrepreneurs can access is usually dictated by the stage the business is in and the type of opportunities the company is pursuing: startups, ongoing concerns. Advantages of equity financing no obligations for dividends or interest investor expertise equity expands borrowing power equity spreads risk of failure. Disadvantages of equity financing dilutes ownership and independence disagreements compromises legal costs. Obtain higher roi by using leverage debt. Interest costs are tax deductible; dividends from equity are not. No loss of ownership control and greater flexibility with debt financing. Total risk on part of the owner.
