The emerging new business in the world today has made people’s lives simpler and easier, since they can access goods and services. Different means are used to finance the companies. Both big and small industries require proper financing in order to run smoothly. Individuals select means of finance that works to their advantage, and one that they can access easily. The amount of financial needs depend on the nature and size of the company where the processes of raising funds on the source from, which fund may be available, is utilized.
The following list looks at the various measures of raising finance used by business people:
- Family and friend contributions
This is mainly for small businesses. Sole proprietorship majorly get their means of support to start and continue running the business from their personal savings, as well as contributions. Since the capital required is usually small, the money collected is usually sufficient. The cash borrowed from family members or friends is returned without any interest, making it the most effective course of funding the small business.
- Profit made
The profit collected from the company is channeled back to boost the company’s growth. Most corporations that make profit use this way at the end of very business year where its vision is to continue growing. They save funds that are later invested back into the business. It is the recommend procedure since it does not incur any cost of refunding. Retention of profits is a sort of self-financing the business. It reduces the dependence of external sources of finance and increases the credit worthiness of a company where it is able to adopt a stable dividend policy.
When a company is big in size, the best means of funding their operation when they have limited resources is by taking loans from banks. Depending on the capital they need, they can take loans that will finance the projects. The financial institutions gain by charging reasonable interest rates. Opening a company is now easier with the presence of easy ways to access loans. The procedure is also simple. Companies come to different financial institutions where they can secure long-term and medium term loans. This method is however challenging for small and start-up companies.
- Sale of shares
With the market, stock exchange companies are able to sell their shares and raise capital. If the firm requires an easy way of sharing their profit as well as their risk, selling some of the share to the public is a good idea to raise funds. Stakeholders can also decide to reduce their share by selling some of it. By so doing, the funds raised is used in the business.
- Cash Borrowing
Companies have the power to borrow cash from the general public by issuing debentures in which they use the funds raised for various activities in the industry. Big businesses use this means to increase their capital. Debentures are mostly issued to finance the long term requirements of ventures and do not carry any voting rights.
The means of financing a business depends on the size of the undertaking, the capital required as well as the guarantees necessitated. The different approaches of raising capital are used in order to smoothen the operation of companies on the market.