Best Way To Fund A Business

It is the fantasy of fools who assume that buying a business that is not doing well for a cheap price and then turning it around for a profit is the way to riches.

In reality, according to the Small Business Administration the failure rate for most startup businesses is between 50 to 60 percent.

However, many business experts see that it is closer to 80 percent for those foolish enough to buy a business and hope to turn it around for profits.

Buying a Profitable Business

The advantages of buying a profitable business are that you will see cash flow from the first day of ownership. A profitable business will have an established reputation and in a few cases a seller who will offer to finance the business deal.

Requirements for Buying a Profitable Business

When buying a profitable business there are a few requirements before the purchase. The first is that no matter how the business is presented to you do not buy the business unless they have been profitable for at least the last five years.

Next, do not buy a business that has an annual pretax net cash flow of under $100,000, anything smaller is too small. The business needs to be in competitive advantage to similar businesses.

The business you want to buy needs to offer something unique to customers. When looking for a specific business to buy, keep your options open.

Look for the top businesses in their particular industry, even if that industry is currently struggling in the economy. Top businesses are the survivors when economic struggles are worst and they usually end up being the winners early on in recoveries.

When the Business Deal is Completed

Things to keep in mind after the business deal have been completed. Negotiate to retain the seller of the business to be a consultant.

Make sure that you hire a good manager as well for even the best business will fail if it is mismanaged.

Look to retain the good employees in the business and compensate them well in the transition as you will need people who know the products and understand the right marketing for you business.

How To Get Funding For A Business

Starting from scratch presents some distinct disadvantages, including the difficulty of building a customer base, marketing the new business, hiring employees and establishing cash flow...all without a track record or reputation to go on.

Buying an Existing Business


In most cases, buying an existing business is less risky than starting from scratch. When you buy a business, you take over an operation thats already generating cash flow and profits.

You have an established customer base, reputation and employees who are familiar with all aspects of the business.

And you dont have to reinvent the wheel--setting up new procedures, systems and policies--since a successful formula for running the business has already been put in place.

On the downside, buying a business is often more costly than starting from scratch. However, its easier to get financing to buy an existing business than to start a new one.

Bankers and investors generally feel more comfortable dealing with a business that already has a proven track record. In addition, buying a business may give you valuable legal rights, such as patents or copyrights, which can prove very profitable.

Of course, theres no such thing as a sure thing--and buying an existing business is no exception.

If youre not careful, you could get stuck with obsolete inventory, uncooperative employees or outdated distribution methods. To make sure you get the best deal when buying an existing business, be sure to follow these steps.

The Right Choice


Buying the perfect business starts with choosing the right type of business for you. The best place to start is by looking at an industry with which youre both familiar and which you understand.

Think long and hard about the types of businesses youre interested in and which best match your skills and experience. Also consider the size of business you are looking for, in terms of employees, number of locations and sales.

Next, pinpoint the geographical area where you want to own a business.

Assess labor pool and costs of doing business in that area, including wages and taxes, to make sure theyre acceptable to you.

Once youve chosen a region and an industry to focus on, investigate every business in the area that meets your requirements. Start by looking in the local newspapers classified section under Business Opportunities or Businesses for Sale.

You can also run your own Want to Buy ad describing what you are looking for.

Remember, just because a business isnt listed doesnt mean it isnt for sale. Talk to business owners in the industry; many of them might not have their businesses up for sale but would consider selling if you made them an offer.

Put your networking abilities and business contacts to use, and youre likely to hear of other businesses that might be good prospects.

Contacting a business broker is another way to find businesses for sale. Most brokers are hired by sellers to find buyers and help negotiate deals.

If you hire a broker, he or she will charge you a commission--typically 5 to 10 percent of the purchase price. The assistance brokers can offer, especially for first-time buyers, is often worth the cost.

However, if you are really trying to save money, consider hiring a broker only when you are near the final negotiating phase. Brokers can offer assistance in several ways.

Prescreening businesses for you. Good brokers turn down many of the businesses they are asked to sell, whether because the seller wont provide full financial disclosures or because the business is overpriced. Going through a broker helps you avoid these bad risks.

Helping you pinpoint your interest. A good broker starts by finding out about your skills and interests, then helps you select the right business for you. With the help of a broker, you may discover that an industry you had never considered is the ideal one for you.

Negotiating


The negotiating process is really when brokers earn their keep. They help both parties stay focused on the ultimate goal and smooth over any problems that may arise.

Assisting with paperwork. Brokers know the latest laws and regulations affecting everything from licenses and permits to financing and escrow.

They also know the most efficient ways to cut through red tape, which can slash months off the purchase process. Working with a broker reduces the risk that youll neglect some crucial form, fee or step in the process.

Getting Business Funding

The rate of failure among business start-ups is fairly high. This is because the owners of these businesses lack management expertise or business knowledge.

In most cases, inadequate capital is the reason behind the business failure. Just like an established business, start-ups also require sufficient capital to run their day to day business operations as well as to finance their long term business needs.

If you are planning to set up a new business, and are looking to find out how to get business funding, you must know the difference between equity financing and debt financing.

Equity financing involves using owners’ funds. Large companies raise equity share capital by issuing their shares to the common man.

When a person buys equity shares of a company, he becomes an owner of the company and is entitled to profits and losses of the company.

If you are setting up a small company, you can invite business partners to join your business and invest in it. However, in doing so, your ownership in the business dilutes.

Another source of business finance is debt finance. It includes loans and debentures. Loans are the most common type of debt finance in case of Business Start-Ups.

Lenders offer both short-term and long-term loans for small and new businesses. Short-term loans are usually unsecured and are used to run day to day business operations.

Long-term loans are secured against a property and are used to buy fixed assets such as land, building and machinery.

Whether you use equity or debt finance to set up your business, keep in mind that the key to success is dedication and hard work.

A lot of business ventures are available such as investing in restaurants. You could begin such a venture using cash that you have gotten from various sources. One great source is using merchant cash advance companies to get restaurant finance.

At times, raising the required amount of cash to start this type of business may not be possible. Merchant cash advance companies can offer restaurant finance to enable the entrepreneur refurbish or extend an existing restaurant.

Another way to get business funding can also be offered to open new branches of the business. This financing is usually in form of cash advance.

Merchant cash advance (MCA)is a great alternative source of funding for small scale entrepreneurs who may be unable to get loans from commercial banks due to a number of reasons.

Those with a low credit rating can for instance benefit from such financiers. These companies charge a reasonable and affordable interest rate on the cash advanced.

Applying for financing from MCA is efficient and fast to make sure that the client carries on with his business quickly. The borrower is expected to fill some application forms which could be easily done online.

After accepting the application, the lender and borrower agree on the repayment terms. This is a kind of lending that is based on future credit/debit card sales from the business.

The lender therefore reimburses himself from the daily debit/credit card sales of the business till full repayment of the cash advanced.

One does not require to show any collateral as security before the advance is awarded. All that is required is the monthly credit card returns of the business and the length of time in business.

This is unlike other commercial loan providers who demand for a lot of information including financial statements, tax returns and business plans.

Entrepreneurs enjoy numerous benefits when they get financing from such firms. The bureaucracy and paper work is minimal and this makes the process of getting an advance faster.

The borrower can thus start his business without any uncalled for delays. On top of this, these firms charge a low interest rate which enables the borrower to enjoy a greater share of profits.

The MCA considers the real business presentation of the business instead of concentrating on its credit performance. As a result businesses with poor credit rating are eligible for such advances so long as they are able to prove the willingness to pay.

Any business with a viable plan could thus get an advance quickly and easily to begin making money instantly.

Depending on individual circumstances funding ranging from grants, personal loans, bank loans and venture capital can be obtained.

In fact, it is advised for you to finance your small business in a good way so you can do something right for your business and future.

First of all, you need to know how much money you require if you would like to start or expand your small business. In this case, the estimation will help you to do the right preparation so you can expand your business rightly.

Then, you can create a proposal that is used to ask business loan so you can raise your business better. In fact, the loan should be done if you do not have enough money to support your business.

In making the proposal, it is important for you to explain about the financial history of your company.

Besides, you need to describe the profits you can get from your business so there is a good composition between the income and outcome so you can run your business very well.

Also, it is important for you to acquire a credit report to know the rate of your credit.

In fact, you can get the loan from bank if your business has already run because bank will not give a loan for starting-up business.

And then, you can choose secured loan that you can get from reputable company so you can get the qualified one for your needs.

You need to get prepared when shopping for funding because without a very elaborate plan, getting business funding can be an uphill task.

Bank loans are suitable for those who have already established their businesses and are already running.

Commercial banks can request that you supply them with your operating accounts for some months or even years to enable them evaluate the profitability of your business hence make decision to lend you or not.

However, you will have to write a business loan proposal that outlines your need for funding together with the current and projected future information on cash inflows.

Microfinance institutions also offer business loans for individuals and groups. While their application requirements are not very strict, you must demonstrate real need for financing a sustainable and profitable business venture.

However, they prefer to lend to groups since each member of the group guarantees another hence reducing the lending risk.

Some microfinance institutions target a specific segment of clientele hence you will need to gather information if you qualify to get financing from these institutions.

Venture capital is also an easy way to finance a small business. The proprietor of the business parts with a certain agreed equity of the business and in return the allotees of the equity finances the business to the agreed amount, then the profit of the business is shared between the financier and the proprietor.

Some governmental and non governmental organizations can offer grants to enable people finance their small businesses. The amount is limited but can be of a great help especially when there is a need to put the business running.

This way of business funding is really good since it cannot be repaid back, unlike loan which requires you to pay back together with interest.

However,you will be required to account for the use of the cash advanced to you to ascertain whether you used for the right purpose or not.

Personal savings can be of great help in funding a small business. Bearing in mind that the amount invested will not be paid back and remain part of the business capital, much relief also exist because payment of interest on such capital is at the discretion of the proprietor.

Loans from friends and relatives can also be a quick way of how to get business funding. Since this does not require many formalities, an individual can just request for cash from his or her friends and relatives. This can be granted within the shortest time possible.