Entrepreneurial Cashing-in - Essay Example

Cashing in this case by an entrepreneur is used to mean the different ways used by an entrepreneur to source funds for start-up, daily operation and growth. The ways of cashing in are diverse and they may either be short-term or long-term.

Among the short-term means, an entrepreneur may cash in from their informal networks which involve friends and family. This is a source for both small and medium-sized companies and so powerful funding sources if well harnessed. They take place in the form of fundraising hence no obligation for a refund while providing a very powerful capital base. Another source of short-term finance is life savings. Tom and Tom with their lifetime savings of $17,000 were able to undertake some expansion. Like Nantucket Nectars, entrepreneurs like Tom and Tom can borrow funds from local financial institutions or individuals. Short-term borrowings may be in the form of overdrafts with limits set by banks and interest charged at variable rates set by the banks. Short-term loans may also extend up to three years; such sources of cash do not require much collateral, hence easy access. Before short-term lending is extended to firms, factors such as purpose, amount, repayment period, term and security are considered and ascertained (Pride, William, Robert, 2011).

As a matter of urgency, if deemed so, a company may welcome wealthy individuals who pump money into the business in exchange for a percentage of shareholding. The sales director of Nantucket Nectars advises that Mike Egan be allowed to bring in $600,000 for the exchange with 50% of the company. Out of the company's profits, it can decide to plough back some amount to grow the business in the form of retained earnings. Though this means has a direct impact on dividends since it reduces the amount earned by shareholders hence they may complain (Pride, William, Robert, 2011).

Retained earnings are attractive sources of cashing in since managers think they don’t cost anything, it is at their discretion to make dividend decisions. Also retained earnings as opposed to issuing new shares help the firm to evade issue costs and this method also helps the management avoid change of control. Another factor which facilitates the consideration of retained earnings is the financial and taxation levels of the existing shareholders. If due to taxation, they would receive capital profit realizable only during taxation of shares sold than receive current income then retained earnings is preferred to other methods.

Businesses can still cash in through government assistance from their subsidization programs. This normally exists in the form of cash grants and other direct assistance. The government usually employs these tactics when the economy is low and needs stimulation to bust growth (Pride, William, Robert, 2011).

An alternative to being chosen for adoption by a firm as a source of its cash should be a cheap and cost-effective option which possesses the capability of giving back good returns and fostering good relations among the stakeholders. Though retained earnings would reduce the shareholder's benefits in the form of dividends, it is my preferred and best choice since it is cheap and the amount fixed is at liberty. The method also saves the firm from some unnecessary costs and keeps the firm on track in terms of control which is vital for the smooth running and performance of any company.