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Financing Your Business

Financing Your Business. Bootstrapping. Operating as frugally as possible Lease anything you can Hire few employees Be creative. Start-up Money. New businesses have no track record so… Hard to attract investors Usually need to use personal resources

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Financing Your Business

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  1. Financing Your Business

  2. Bootstrapping • Operating as frugally as possible • Lease anything you can • Hire few employees • Be creative

  3. Start-up Money • New businesses have no track record so… • Hard to attract investors • Usually need to use personal resources • Savings, credit cards, family and friends

  4. Financing the Start-up • 2 types of financing • Equity • Debt Sources

  5. Equity Sources • Risk Capital – investor money • Personal savings – entrepreneur’s savings • Friends and family – Borrow money from relatives • Private Investors – nonprofessional financing sources • Partners – people who share costs/responsibilities • Venture capitalists – invest capital professionally • State Sponsored Venture capital Funds – States use funds to create jobs

  6. Debt Sources • Banks • Line of Credit • Trade Credit • credit from within the industry or trade • Minority Enterprise Small Business Investment Companies • Ownership must be at least 51% female, minority or disabled • Commercial Finance Company • Take more risks than banks • Small Business Administration • Assures the bank you/they will repay • Small Business Investment Company • Licensed by the SBA to provide equity and debt financing to young businesses

  7. Obtaining Financing • What do Venture Capitalists look for? • Achieve capital gain through investment then cash out • Looking for high-growth firms • Good management teams • What do Bankers look for? • 5 C’s • Character • Capacity for MarkUp • Capital • Collateral • Conditions

  8. Obtaining Financing • What do Private investors look for? • Tend to be conservative • Often investments are found through friends and business associates- locally • Invest between $10,000 and $500,000

  9. Some Vocab and Definitions… • Due Diligence – Team of experts run background checks • Private Placements – raising capital by selling ownership interests of your private corporation or partnership. AKA Securities • Initial Public Offerings (IPO) – the sale of stock in your company in the public stock exchange

  10. Capital Needs • Startup Costs • Costs incurred before the business is actually started • Leasing space, equipment, phones, etc. • Working Capital • Cash needed to carry out daily operations • Contingency Funds • Extra funds to cover unforeseen business expenses

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