Financing Your Business

Bootstrapping Operating as frugally as possible ▫Lease anything you can ▫Hire few employees ▫Be creative

Start-up Money New businesses have no track record so… ▫Hard to attract investors ▫Usually need to use personal resources  Savings, credit cards, family and friends

Financing the Start-up 2 types of financing 1.Equity 2.Debt Sources

Equity Sources Risk Capital – investor money Personal savings – entrepreneur’s savings Friends and family – Borrow money from relatives Private Investors – nonprofessional financing sources Partners – people who share costs/responsibilities Venture capitalists – invest capital professionally State Sponsored Venture capital Funds – States use funds to create jobs

Debt Sources Banks ▫Line of Credit Trade Credit ▫credit from within the industry or trade Minority Enterprise Small Business Investment Companies ▫Ownership must be at least 51% female, minority or disabled Commercial Finance Company ▫Take more risks than banks Small Business Administration ▫Assures the bank you/they will repay Small Business Investment Company ▫Licensed by the SBA to provide equity and debt financing to young businesses

Obtaining Financing What do Venture Capitalists look for? ▫Achieve capital gain through investment then cash out ▫Looking for high-growth firms ▫Good management teams What do Bankers look for? ▫5 C’s ▫Character ▫Capacity for MarkUp ▫Capital ▫Collateral ▫Conditions

Obtaining Financing What do Private investors look for? ▫Tend to be conservative ▫Often investments are found through friends and business associates- locally ▫Invest between $10,000 and $500,000

Some Vocab and Definitions… Due Diligence – Team of experts run background checks Private Placements – raising capital by selling ownership interests of your private corporation or partnership. AKA Securities Initial Public Offerings (IPO) – the sale of stock in your company in the public stock exchange

Capital Needs Startup Costs ▫Costs incurred before the business is actually started ▫Leasing space, equipment, phones, etc. Working Capital ▫Cash needed to carry out daily operations Contingency Funds ▫Extra funds to cover unforeseen business expenses