Many businesses out there are often hindered by lack of finance to execute vibrant projects that will otherwise contribute positively to the bottom line of the company.
In financing non-current assets, matching principle is applied so that the companies don't run into financial difficulties.
Below are some ways to finance your small and medium businesses.
PERSONAL SAVINGS: Certain fixed assets like computers and cars can be financed from personal savings. The major disadvantage of this form of raising finance is that there is a limit to the amount that can be raised through this way, except for the super rich.
GRANTS BY GOVERNMENT: Grant is a sum of money given to an individual for a specific project or purpose. Some conditions have to be met for this grant to be obtained. There are also some cash flow implications to this form of raising capital.
MORTGAGES: Non-current assets like buildings can be financed through this method. This form of financing might not be so suitable for all forms of small businesses as there are still some hurdles that needs to be crossed to get money.
VENTURE CAPITALISTS: These are companies that set out some money periodically to invest in risky but promising ventures. Google and some other big shots have recently joined the league. They provide money to start-ups in expectation of abnormally high return. They get the abnormal returns through the sale of their interest in the company to the general public or through an initial public offer (IPO), or still to another company in a trade. They screen good investing opportunities and entrepreneurial teams from the bad ones. This implies that a small and medium businesses that wants to raise fund through this means must meet certain standard.
BUSINESS PHILANTHROPISTS: This is usually a group of wealthy individuals that specialize in investing in start-ups and small businesses. This is similar to the venture capitalists discussed earlier with the only difference being that business philanthropists are composed of few wealthy individuals while venture capitalists can be a company.
FRIENDS AND FAMILY MEMBERS: Informal network of friends may include some weak-ties that can come from our friend friends. This is an often neglected source of fund/finance for small and medium sized companies. Very powerful investment can be financed through this medium if well harnessed.
RETAINED EARNINGS: Companies can finance their project through funds that have been withheld from previous periods' earnings. This is usually referred to the cheapest form of financing that a business can fall to first before looking outside of the company. This in finance theory is known as pecking order theory.The validity of this theory is still question as there are still not much empirical evidences supporting it.
LEASING AND HIRE PURCHASE: These can be considered for small assets. It could either be finance or operating lease. The benefits of using this source of fund includes the right to engage in an off balance sheet financing. This benefit is however diminishing as the accounting standard setters are proposing to make changes that will make it almost impossible for operating lease to be practical.
