When buying wholesale ladies
clothing and starting a new shop venture www.elesclothing.co.uk hopes this
will help you:
How much start-up capital in
enough???
·
Items for consideration
·
Business loans
·
Benefits of using business loans
·
Drawbacks of using business loans
·
Debentures
·
Advantages of debentures
·
Disadvantages of debentures
Effective cash-flow is the lifeblood of any business entity, whether it
happens to be a sole trader business entity or a multi-national business
conglomerate and without it, the business will stall and fail. One of the
leading causes of corporate insolvency within the UK is poor cash flow and the reason
for this is due to the fact that the limited cash flow that the business has
means that they are then forced by necessity to ensure that they acquire funds
from alternate means such as a bank.
With that in mind then, it is crucial that if the business owner does
intend to raise additional capital for the business through external means,
that they carefully review their options and the potential pitfalls.
The purpose of this article is to give some consideration as to the
different forms of start-up capital financing options that there is, and the
various methods that can be utilised to acquire the capital.
How much start-up capital is enough?
Calculating how much start-up capital is required for your business model
is an essential step in ensuring that you do not leave yourself in a vulnerable
position in financial terms, because too little capital will stifle the
flexibility of the business to grow and evolve, whereas too much may mean that
you end up burning bridges, alienating the lenders and incur unnecessary and
avoidable fees.
Items for consideration
Start-up capital is the term used to refer to the sum of money that the
business owner will require to have in order to settle the initial items of
expenditure, such as the purchase of raw materials, the hiring/renting of
premises such as a factory or office space as well as machinery etc.
Therefore, it is worthwhile to sit down and record the expected costs
associated with items such as rent, deposits for leases, the cost of raw
materials or stock and take it from there. As an added precaution, it is
advised that once you have identified the approximate figure of start-up
capital that you will require, make sure that you add a percentage of this
figure, say 10-20%.
This extra 10-20% will serve as a buffer reserve, i.e. extra start-up
capital that you have at your disposal and within easy access which can be
dipped into and relied upon in the event that additional, unexpected expenses
or charges should arise for whatever reason.
In order to more readily and accurately determine the sum of start-up capital
your business requires, you need to give some consideration to both the
pre-operational expenses (the expenses that will be incurred even before you
make your very first sale) and monthly expenses (such as salary, insurance
premiums, tax, rent etc).
The inclusion of monthly expenses for the determination of start-up
capital always catches people off guard, but the truth of the matter is that it
is simply not realistic to expect that your business will break even in the
very first month of trading. Remember, the chances are that you will be fending
off and competing other, more established companies across the field in which
you are involved in.
Once you have identified the relative amount of start-up capital you will
need for your business, the next item on the agenda is the actual acquisition
of said capital. The following is a brief overview of some potential sources.
Business loans
Benefits of using business loans
- A business loan will provide the company with the necessary start-up capital in a relatively short space of time, allowing for the business operations to commence in earnest.
- The repayment period of the loan can be extended over a longer period of time so as to ensure that the cash-flow of the business does not suffer adversely as a consequence.
- When the business loan has been granted, the business owner is free to utilise the loan in any manner that they so wish.
Drawbacks of using business loans
- At the end of the term of the loan, the money that the business had acquired, whether as part of a business loan or overdraft will then be required to be returned to the financial lender with the additional monetary pressure and commitment of ensuring that interest is also paid.
- In the event that the business that has acquired the loan is unable to comply with the terms and conditions of the loan agreement, then the bank will simply seize assets of the business in recovery of the debt.
- If the assets of the business are seized, this means that the productivity of the business will be impaired as a consequence, making it more difficult to produce the same volume of goods or provide the same high quality of service that was once experienced and achieved.
- If the business has a limited credit rating then this means that not only will it struggle to acquire financing from a commercial lender but furthermore, it will also be required to pay higher rates of interest and penalty clauses as a consequence of the degree of risk that the company is perceived to have.
Ultimately, the final choice and decision as to what method of raising
business start-up capital is the most suitable for your needs is a decision
that only you can make. Before you do however, make sure you consider the long
as well as the short-term consequences.
Debentures
Advantages of debentures
- Debentures provide the maximum degree of ultimate power and control for the business owner, because debentures are like shares without the associated voting rights attached to them. This means that the business owner is free to make business decisions without consultation or interference with or from the debenture holders.
- When the profit margins of the business are in the black, the business can then purchase the debentures back so as to eliminate an outstanding expense.
Disadvantages of debentures
- Debentures are typically dealt with and valued at very high denominations of currency which in turn has the effect of pricing them well outwith the comfortable price range of most ordinary people. This in turn reduces the pool of potential investors can significantly.
- Debentures are also typically perceived as being high-risk to investors by virtue of the fact that in the event of the insolvency of the company, they rank lower than other types of stakeholders such as shareholders
THANKS FOR YOUR BUSINESS ,
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