Small Business Finance: Finding The Right Mix Of Debt And Equity

Financing a small business can be most time consuming activity for a business owner. It can be the most important part of growing a business, but one must be careful not to allow it to consume the business. Finance is the relationship between cash, risk and value. Manage each well and you will have healthy finance mix for your business.

Develop a business plan and loan package that has a well developed strategic plan, which in turn relates to realistic and believable financials. Before you can finance a business, a project, an expansion or an acquisition, you must develop precisely what your finance needs are.
Finance your business from a position of strength. As a business owner you show your confidence in the business by investing up to ten percent of your finance needs from your own coffers. The remaining twenty to thirty percent of your cash needs can come from private investors or venture capital. Remember, sweat equity is expected, but it is not a replacement for cash.

Depending on the valuation of your business and the risk involved, the private equity component will want on average a thirty to forty percent equity stake in your company for three to five years. Giving up this equity position in your company, yet maintaining clear majority ownership, will give you leverage in the remaining sixty percent of your finance needs.
The remaining finance can come in the form of long term debt, short term working capital, equipment finance and inventory finance. By having a strong cash position in your company, a variety of lenders will be available to you. It is advisable to hire an experienced commercial loan broker to do the finance �shopping� for you and present you with a variety of options. It is important at this juncture that you obtain finance that fits your business needs and structures, instead of trying to force your structure into a financial instrument not ideally suited for your operations.

Having a strong cash position in your company, the additional debt financing will not put an undue strain on your cash flow. Sixty percent debt is a healthy. Debt finance can come in the form of unsecured finance, such as short-term debt, line of credit financing and long term debt. Unsecured debt is typically called cash flow finance and requires credit worthiness. Debt finance can also come in the form of secured or asset based finance, which can include accounts receivable, inventory, equipment, real estate, personal assets, letter of credit, and government guaranteed finance. A customized mix of unsecured and secured debt, designed specifically around your company’s financial needs, is the advantage of having a strong cash position.
The cash flow statement is an important financial in tracking the effects of certain types of finance. It is critical to have a firm handle on your monthly cash flow, along with the control and planning structure of a financial budget, to successfully plan and monitor your company’s finance.

Your finance plan is a result and part of your strategic planning process. You need to be careful in matching your cash needs with your cash goals. Using short term capital for long term growth and vice versa is a no-no. Violating the matching rule can bring about high risk levels in the interest rate, re-finance possibilities and operational independence. Some deviation from this age old rule is permissible. For instance, if you have a long term need for working capital, then a permanent capital need may be warranted. Another good finance strategy is having contingency capital on hand for freeing up your working capital needs and providing maximum flexibility. For example, you can use a line of credit to get into an opportunity that quickly arises and then arrange for cheaper, better suited, long term finance subsequently, planning all of this upfront with a lender.

Unfortunately finance is not typically addressed until a company is in crisis. Plan ahead with an effective business plan and loan package. Equity finance does not stress cash flow as debt can and gives lenders confidence to do business with your company. Good financial structuring reduces the costs of capital and the finance risks. Consider using a business consultant, finance professional or loan broker to help you with your finance plan.

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3 Ideas For Business Financing In A Tough Market

One of the key parts of a successful wealth strategy is using leverage. Leverage can take on many different forms – leveraging your time, leveraging your contacts or leveraging your knowledge.

The form of leverage most people are familiar with is a loan, which is a way to leverage your assets. Leverage in this case may be a mortgage on a piece of property or a line of credit in your business.

Many wealth strategies include a business, and having financing available in that business is a critical part of the success of the business and the wealth strategy.

With the credit markets tightening, I’ve had many people ask me for new ideas on how to get financing for the business because the traditional ways are either limiting their business or not available at all.

The answer? This is where I use leverage, and leverage my contacts. I recently met David Gass, CEO & Founder of a business credit company and we instantly clicked. Why? Because I love thinking outside the box. When I do tax planning, I love finding creative ways to legally reduce taxes. David does the same thing in the business credit world. David shared some fantastic ideas with me on business financing options in today’s market, and I’m excited to share a few of them with you.

#1 Leasing A company can use leasing as an option to finance their business. A lot of equipment and even software can be leased. There is extremely beneficial to start-up companies and those looking for large equipment purchases. The company doesn’t have to pay up front for a large ticket item, which then conserves cash for the growth and day to day operations of the company.

#2 Accounts Receivable (A/R) Factoring If a company has accounts receivable with other businesses with decent history and credit scores, a factoring company will come in and buy the receivables for a discount on the future value. The business gets money now and the factoring company waits for the invoices to be paid. When they are paid by the customers of the business, the factoring company gets their share and repayment on the advance.

#3 Merchant Account Cash Advance Programs Although this type of financing can be expensive it is still a great option for some businesses. This type of financing is for businesses with a merchant account charging more than $10,000 per month on the account. Many merchant cash advance companies will advance up to three months charges on a merchant account with very little personal credit information required to obtain the loan. The loan is then paid back out of future merchant account activity as a percentage of the total amount charged that month.

Get Creative…It’s Legal! As I said, I love tax planning because it allows me to be creative. Sometimes prospects ask me if what I do is legal. Is it? Of course it is! The secret is knowing the tax law so well that I know what is possible…and legal! The same is true in the financing world.

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Managing Your Finances With A Personal Finance Manager

Anyone who lives within their means lack imagination’�. Oscar Wilde could not have put it in a better way that he lives outside his means and this is true to everyone who faces scarcity of funds to get going. The dramatist said this as at that time there were no tools to manager your personal finances. Though not a spendthrift, an average individual struggles to keep up with the pressure the present day life style imposes upon him. Simplify your investments and personal finance to tide over the crisis. Many end up in bankruptcy without knowing about the opportunities, begging door to door without any response. Use a personal finance manager as your aid to stay clear off all unwanted expenditures that may drain away your wallet. The paucity of money that grips one in between paydays can upset the apple cart. Take leverage of a personal finance manager and see the difference. Cash in the benefits extended by the expertise of a skilled and powerful tool. Don’t sulk even if you are a person with bad credit. The proficiency of an accounting software can lead you through these troubled times. The haphazard way of investment can counter produce at times and you plunge yourself in deep waters. Here in comes the expertise of a tool who can help you play well without capsizing the boat. Any bad decision can cost you dear, so it is best advised to act prudently lest you are lost with no chance of recovery. Personal finance is the way you apply financial principles to your e everyday budget. It is the method you adopt in handling your budget in relation to your income, spending and saving patterns. A right decision at the right time can perhaps avert a tragedy of immense measure. So why hesitate to take a right step at the right direction. Drive away your financial blues by using a reliable personal finance manager.

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