Finance is an integral part of any business or enterprise, and without it, a business cannot move forward. Financing a business requires not only the money but the right skills and knowledge to execute it. Any business that is set up in the market requires raw materials, goods, organisation, etc., and there is no way to accomplish that without finance.
In today’s article, we will discuss 7 things that you should know about business financing.
What is business financing and what are its types?
Business financing, as the name suggests, is the utilisation of funds and credit to leverage assets, raw materials, etc. Without business financing, a business cannot exist for a long time; it requires regular funding to carry out all economic activities.
To finance a business, you might not always need to put up your own resources; rather, you can ask investors to invest their money, and in return, they take some equity in your company.
There are two main types of business financing options, and they are:
- EQUITY FINANCING:
This is a very popular option that most businesses opt for. Here, you have to pitch investors on investing in your company, and in return, you give them shares in your business.
For example, if an investor invests $1 million in your business and asks for 20% of the shares, that is called “equity financing.”
- DEBT FINANCING:
This is also one of the preferable options for business financing to prevent giving shares to anyone. You borrow money from a lender and repay it with interest without giving up your stake in the company.
Seven things you should know about business financing:
- You must have a clear vision:
A vision is very necessary for a business to succeed, especially in a market where the competition is tough. You need to have a vision for your business that will help you gain more investors. That is the first key rule of business financing: having a vision.
You should ask yourself, “Where do I see myself in the next 5 years?” If you have a promising goal to achieve in your business, you should start by setting tiny milestones and aiming to achieve them. To get more and more investors and compel them to invest with your passion for the business, you need to have a vision.
Not only will it help you achieve your goals and fulfil your dreams, but it will also inculcate in you the power of envisioning.
- Focus on your market size:
See how much wider and bigger your market is. See what kind of investors would be interested in your products and market structure. Suppose you have a vertical market. With the correct pitch, you can attract outside investors. Outside investors like to invest in vertical markets more than other forms of markets.
Business financing is simply not about investing in raw materials; rather, it is also about choosing the right path at the right time. For angel investors, you might need to improve your market size, market structure, and share.
- Investing personal funds:
Investors love passionate entrepreneurs who invest their resources to make the business successful. This is also a healthy aspect of business financing. You’ve got to make personal sacrifices and add your resources to your venture. This attracts investors to invest in your business because they are assured that you are very serious about your work.
- Value proposition:
Before labelling the value of your product, you must understand one thing for sure. Your product is only designed for your customers, and to know what value your products or services hold, you have to know your customers. This is one of the important steps to financing a business. You should interact with your customers and know how your product is impacting their lives.
- Looking for alternatives:
If you think of bringing in outside capital to broaden the scope of your business, it might help your company thrive. But the problem could be about controlling your business. You might compromise on the controlling aspect, and you might think of hiring outside CEOs and other members.
Well, it is welcome to have an outside CEO because it will also bring outside expertise to your business, which is a good thing. Even companies like Google and eBay had outside CEOs, even if they were just startups.
- Upgrading technology and software:
To do the best in your business, you need to upgrade your technological force and your software to beat the competition. In business financing, this investment is always considered wise.
You also have to manage your funds effectively, taking care of other requirements like buying assets, raw materials, etc. Financing a business is not only about making choices, it is about making better choices.
- The art of negotiation:
Negotiating is a skill that can turn the tables and bring in a huge amount of profit to your business. You have to put out your offer and ask for a “fair valuation” instead of an “optimum valuation.”
Finding the right investors who will understand your motive, give you the correct guidance, and respect your decisions with a “fair evaluation” is the key. It is way better than having an investor who barely understands your requirements and motive with an “optimum evaluation.”
Summing it up:
Apart from investing in your assets and goods, business financing is a very broad concept. It’s about making the right choices and letting investors in who can figure out what a fair price is and what you need. Financing a business is also about adding your interest, passion, and resources to it and making it worth it.
Piramal Finance is an establishment that provides a wide range of services on all types of loans, like personal, housing, corporate, etc. It also tells you about financing, investments, SIPs, etc. If you like reading such content, you can go to their website, click on “blogs,” and go through their amazing write-ups.