Introduction
Many small businesses face quite a several difficulties when starting up. These problems are mainly in raising the necessary capital required to start the business. One such difficulty is the determination of how much capital is required to start, operate and expand the business venture.
Most businessmen and women lack the accurate knowledge of the prices of goods and services they would require to kick off their business undertakings. They lack proper plans for spending the finances once they got them and they also fail to prove to the lenders how they will break the finances to finance different requirements in the business.
Failing to convince the lenders that they can account for the expenditure of every bit of finances is a good reason that makes their proposals rejected. Another problem is the lack of adequate communication with the lender. Lack of a concise and professional business plan fails to give the details of the business concept which lacks proper information to be conveyed to the lender because the plan reflects its creator.
In addition, insufficient marketing and sales strategies result in the disqualification of many business people from accessing finances to start and expand their ventures. Lenders are proud of a business plan that has 30% information devoted to selling and marketing. Any business plan that falls short of this does not qualify to be financed.
Generating finances
Every business venture faces threats or risks in one way or the other. Lenders are more ready to finance business undertakings that reflect these risks rather than covering them up. Many business people lose chances of getting finances because of covering up these risks and hence fail to start up their businesses.
Firms generate finances internally through bootstrapping. This involves leasing and factoring rather than using credits and purchasing equipment. Bootstrap financing can be used by a firm to stretch its current capital outlay. It goes a long way into finding methods that can meet the firm’s resource needs and trying to avoid any formal financial transaction.
Bootstrap financing
Several categories of bootstrap financing available to a firm include cooperative assets, client-based funds, leases, outsourcing, subsidies or incentives, foundation grants, funding from relations, barter, quasi-equity arrangements, and short-term borrowing. Borrowing serves adequately in the early stages of an enterprise. It boasts what is already available from the owner and enables the business to kick-off fast enough to overcome any initial struggles that might exist. The use of credit cards is useful in businesses that need to expand their base of working capital. This is because they can readily access finances at any point and in the most convenient way.
Many entrepreneurs have used barter trading to get the resources they need to start, sustain and expand their ventures. This is especially crucial for ventures with unproductive and non-performing assets which can be advanced to greater opportunities by businessmen and women. In this regard, care must be taken to meet the requirements in cases where legal registrations and title transfers take place.
Conclusion
In conclusion, business people should explore new and existing ways of getting finances to start and expand their businesses. Of much importance is information on the channels available for financing businesses.
References
Bootstrap Financing, (2008). Web.
Financing a Small Business, (2008). Web.
Investor Financing for Small Business, Web.