Financing business ventures

financing business ventures

FutureLearn US
Financing business ventures

Financing a business venture and understanding your numbers are some of the critical issues facing new business owners at the start of any entrepreneurship journey.

The most commonly used business sentence is ‘cash is king’. This is especially true for anyone starting their own businesses. Cash is a business constraint and rightly so. It puts reality into place or every one will start a business and continue like a ship without a rudder. How do you finance your business?

Unless your venture is a side hustle, most start ups use a lot of resources, whether human or capital to develop their ideas. This can be in the form of just bringing people together to discuss ideas. A basic function such as developing goals, planning, strategizing etc. all require money.

Where to start

Most entrepreneurs rarely have the financial backing to start without financial support. Companies like Google and Facebook had their initial backers. These individuals or companies were the ones who provided the lifeline.

Some entrepreneurs start by using their savings, forgo salary, borrow on their properties or other assets. Loans from family members and friends may be required. Many startups burn through money quickly. If the business is still not generating enough cash, it may be time to call for outside funding. This is may be to external organisations who believe in the idea. Government may provide grants and loan guarantees. Banks are reluctant at the early stage of most ventures. New ventures are too risky and most start-ups don’t have enough collateral to support the bank loans.

This is where angel investors or venture capitalists can come into play. These are experts in financing startups, they have better ideas of what might work, they may have suggestions to improve the business success. It can be very expensive to finance your business, careful consideration is needed at all the options.

As you know, the success rates of startups and new business ventures are very low at the early stage of venture development. The figures could be as high as 70% failure rate in the first 5 years.

An eye on the numbers

Even the experts do sometimes get it wrong. So it imperative that entrepreneurs keep a close eye on their finances. As a result of its importance, a new branch of finance is now developing. This is called Entrepreneurial finance (EF). EF allows entrepreneurs to look, review and focus on the financial aspect of entrepreneurship. Many ventures have failed due to lack of financial knowledge by business owners. Knowing, understanding and at least keeping financial data close up can be a critical factor in the survival of a business.

There will be more about this new area of finance to help on your entrepreneurship journey.

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