Financing planning is a very critical step in starting up any business. As one plans to start a business he or she must put into consideration that the ability to plan the financial needs plays a big part in how much capital they we will be able to raise. First of all they should prepare a loan package that includes the business plans, market analysis, projected balance sheet, profit and loss projections, and cash flow projections. As its so obvious lenders prefer these financial projections monthly for at least one year, and then annually for three years. Detail and research needed in the financial projections for the business that they intend to start is directly related to the amount of outside capital that they hope to secure. For Extreme Altitude Ascents, LLC a number of financing alternatives were put to consideration. Prior to determining the most appropriate source of money for the business, an estimate of the total expenses that would be incurred for the project was carried out. Since a number of businesses in the same line, I made a visit to one of them and tried to elicit some information from the owners of the businesses on the most crucial things I would require starting the business, (Lesonsky).
Some of the sources considered included personal financing and money from friends and relatives, loans and equity financing. After measuring on the option a decision was made to obtain the capital from a local capital venture company known as ABS Ventures Limited Partnership. It was decided that the money would be obtained from the venture capital company.
The decision to settle on the Venture capital option was driven by the fact that apart from providing the funding that Extreme Altitude Ascents, LLC needs to startup. It also offers a number of value added services. Such value added services among others include: Mentorship - Venture capitalists offer companies with ongoing tactical, operational and monetary advice. The nominate managers who could sit on the company's board and in that way become part of the company, (Hupalo).
Alliances - Venture capitalists can pioneer the company to a widespread network of strategic partners both nationally and globally and may also identify potential acquisition targets for the business and smooth the progress of the achievement.
Venture capitalists can also facilitate exit as they are experienced in the process of preparing a company for a preliminary public offering (IPO) of its shares onto the abroad stock exchange such as NASDAQ. They can also assist in trade sale. Venture capital companies will also have some disadvantages, which include that most venture capitalists seek to realize their investment in a company in three to five years. And considering the nature of Extreme Altitude Ascents, LLC it would take time to convince them to contribute to the startup. Again also, the venture capitalist is likely to influence the strategic direction of the company and control, (Drucker).
At this time as I prepare to start this business, debt financing and loans are not the best option because I may encounter large loan payments especially at this moment I require start-up costs. In business if you don't make loan costs on time to credit cards or commercial banks, you can destroy your credit ranking and make borrowing in the future difficult or unattainable. You can also strain with family and friends relationships if you do not make your loan payments on time to them. Another disadvantage to debt financing is that for a new company, commercial banks may require you to guarantee your personal assets before they give you a loan of which at the moment there are no assets available. If your business becomes bankrupt, you are likely to lose your business assets. If anyone in a new business uses debt financing he or she is running the risk of bankruptcy. The more debt financing you uses, the higher the risk of bankruptcy.
Obtaining money from my personal finances and from friends and relatives though having the advantage of feeling attached to the business having taken a risk was deemed an inappropriate source of capital. Money from friends and relatives can lead to family squabbles. Borrowing money from family members and friends is always fraught with risk, and borrowing money for a business is definitely no exemption. It was also felt that another potential downside of taking a business loan from a family member is that the person may think that he or she is now part owner of the business, with a right to make company decisions.
Another source of capital that I may consider is leasing companies. In order to reduce capital needs one may lease business. Everything from sporting equipments to land can be obtained from leasing companies or commercial finance companies. However it is generally more costly than bank financing and restricted to items that have a long operative life, widespread use, and are easily repossessed in the event of defaulting. At the end of lease period the leaser is given an option of buying the equipment for an agreed upon amount.
The money obtained from the venture capitalist company will be used for both the startup the start up expenses and the operating expenses. Startup expenses will include: business registration fees, this is the money that will be used to obtain the licenses and the permits, starting inventory, business licensing and permits, rent deposits, down payments on equipment, utility set up fees e.g. water and electricity, One of the biggest expenses was of acquiring the land which I decided it was cheaper to rent than to buy..
Another allotment would be made to the ongoing cost for running the business, otherwise known as the operating expenses. These are the costs of keeping your business running. The list of operating expenses will include: Salaries, which will include my salary and salary of the employees, rent payments for the piece of land on which the business lies and also it was decided that some of the sporting would be hired rather than bought due to their high costs, telecommunications which will include the cost for internet and telephone, utilities these are the electricity bills and water, raw materials for basic construction, storage, distribution, promotion-some of the money will be used to advertiser the business, office supplies, maintenance of the sporting facility, (Associates).
In conclusion, although the business plan is very important, without a financial direction all would be futile. So in any business plan, it is always wise to have a clear picture of the source of funds and how this money will be spent. It is also imperative that different sources of funds are looked into and decision made on the best. Another issue is that unless you are doing a totally new business it is always wise to visit the businesses in the same line. Small businesses with good potential have many sources of capital. However, a substitute for putting ones financial assets on the line in starting a business is limited. For one to acquire capital for any new business there has to be well-developed business plans, financial projections and understanding of sources of monetary support. I will however use commercial lenders as they are in business for profit like any other business person.