Getting Financing - Essay Example

? (Assignment) Getting Finance Finance is the central aspect that determines the degree of a firm’s efficacy in business operations. Therefore, effective business financing is one of the key objectives of every business house irrespective of its size or nature. In traditional concepts, business financing was considered as the essential element only at the time of business commencement. However, modern business concepts maintain that finance plays a more important role whenever the organization needs to move to the next business phase. The inadequacy of working capital has prevented many companies from exploiting potential market opportunities that are available to them. This paper tends to explore the scope of raising finance for my business ‘JBR Watches’ located in Los Angeles. Obviously, it is difficult for an entrepreneur to meet all capital requirements for business expansion all by oneself. Hence, for opening a showroom in Los Angeles, I should seek various sources of financing. At this juncture, it is important to identify significant tactics that an entrepreneur can initiate. The most notable factor that denies a firm’s access to financial sources is its negative market stature. This bad situation can be changed if the company deals with large contracts because they offer comparatively higher profit. At the same time, majority contract terms insist that the supplier must provide 30 to 60 days for the client to pay his invoices (Burstnet). So as to meet these credit requirements of the customers effectively and to earn more profit from large business contracts, it is advisable for the JBR Watches to try for venture capital. Venture capital is an option for small companies that possess innovative business plans but have no adequate operating finance (venture capital). Generally, venture capitalists would not be willing to invest their money in risky ventures; hence, the JBR must formulate effective business designs in order to convince the capital provider about the potentiality of its business. Even though, venture capital is offered for a short period of time, JBR can make returns within this period and repay the amount before the maturity of the stipulated period. Similarly, my company may seek assistance from angel investors. An angel investor maybe a wealthy individual or group of individuals who wish to invest in pre-venture capital companies with the objective of uplifting certain communities (Angel Investors). In the case of JBR, the management can highlight the growth requirement of employees’ community; and it may assist the firm to get financial assistance from angel investors. So as to find a potential angel investor, JBR can employ the internet tools like Google search engine. According to Carbajo (2011) bank is another potential financial source for every business. However, it is observed that the banks do not provide loans and other credit facilities to small companies unless the companies possess substantial assets and all other financial records. Although JBR Watches is a notable concern in the industry, its decreased growth rate would not satisfy the banks’ credit criteria. In the opinion of Yates, banks provide credit facilities to small companies also if the business owners personally guarantee the credit repayment. This type of fund raising is a very risky practice for small companies if the business does not realize anticipated profit and the owner is unable to repay the loan amount. Therefore, JBR must be very careful while applying this tool. Use of credit card is another method that can effectively contribute to the working capital requirements of JBR Watches. Credit cards assist the card holders to make purchases or obtain cash advances and pay them later. Business owners must note that credits cards are very expensive source of funding even if it has reasonably low interest rates. As in the case of bank lines of credit, the business owner personally guarantees the debt repayment while employing this technique also. Therefore, this financing method involves all risks that are presented in the case of bank credit lines. ‘Home equity lines of credit’ is a recently developed concept which may adequately finance the expansion efforts of JBR. Under this practice, the business owners make use of their home credit lines to finance their ongoing business operations. This method would effectively serve the small companies as this application involves the advantages of low interest rates and deducted tax rates. While using this financing concept, business owners must be very vigilant in ensuring the expected economical gains because a business loss would adversely affect firms’ business objectives as well as home building dreams. According to Abrams and Cook (83), ‘solo sustainer businesses are too small to yield revenues to reward outside investors’. At this juncture, business financing friends and family members is a conventional source of capital for it involves less legal procedures. Under this concept, the business owners receive finance either as a capital investment or as a loan. If the business outputs are not satisfactory, it may cause relationship breakdown between the business owner and finance providers. Hence, it is strongly advisable for JBR to frame some legal documents while employing this financing method with intent to define rights and responsibilities of each party. In the words of Longenecker, Moore, Palich, and Petty (692) accounts receivable financing or factoring financing is a technique by which the business owners have the option to sell their long period accounts receivables to a financial company and thereby get payment on those invoices within 48 hours. This application seems to be more feasible as it involves fewer risk elements. In short, as discussed earlier, several business expansion techniques can be considered to meet the current business requirements of the JBR Watches. In my opinion, venture capital and accounts receivable financing would be the most recommendable ones to the company. However, JBR should formulate a viable business plan before thinking about any of these strategies. Works Cited Abrams, Rhonda and Cook, Scott. What Business Should I Start? The Planning Shop, 2004. Print. ‘Angel Investors’. Small Business Notes. Web 20 April 2011 Burstnet Service Agreement-revised August 6, 2010. The Speed the Internet Travels. Burstnet. Web 20 April 2011 Carbajo, Macro. Top 20 Sources of Business Finance. CML North East: The Centre for Microfinance & Livelihood North East, 2011. Web 20 April 2011 Longenecker, Justin Gooderl., Moore, Carlos W., Palich, Leslie E. and Petty, J. William. Small Business Management: An Entrepreneurial Emphasis. US: Edition 13, Cengage learning, 2005. Print. Venture Capital, Buiness Financing. Business.gov.in. web April 20 2011 Yates, Dan. An entrepreneur’s Guide to Personal Guarantees. Regents Bank. Web 20 April 2011 Read More