Sources of finance for a start-up business

Sources of finance for a start-up business -...

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Sources of finance for a start-up business Introduction Often the hardest part of starting a business is raising the money to get going. The entrepreneur might have a great  idea and clear idea of how to turn it into a successful business.  However, if sufficient finance can’t be raised, it is  unlikely that the business will get off the ground. Raising finance for start-up requires careful planning.  The entrepreneur needs to decide: How much finance is required? When and how long the finance is needed for? What security (if any) can be provided? Whether the entrepreneur is prepared to give up some control (ownership) of the start-up in return for  investment? The finance needs of a start-up should take account of these key areas: Set-up costs (the costs that are incurred before the business starts to trade) Starting investment in capacity (the fixed assets that the business needs before it can begin to trade) Working capital (the stocks needed by the business –e.g. r raw materials + allowance for amounts that will  be owed by customers once sales begin) Growth and development (e.g. extra investment in capacity) One way of categorising the sources of finance for a start-up is to divide them into sources which are from within the  business (internal) and from outside providers (external).  Internal sources The main internal sources of finance for a start-up are as follows: Personal sources These are the most important sources of finance for a start-up, and we deal with them in more detail in a later section. Retained profits This is the cash that is generated by the business when it trades profitably – another important source of finance for  any business, large or small. Note that retained profits can generate cash the moment trading has begun.   For example, a start-up sells the  first batch of stock for £5,000 cash which it had bought for £2,000.  That means that retained profits are £3,000 which  can be used to finance further expansion or to pay for other trading costs and expenses.  Share capital – invested by the founder
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This note was uploaded on 10/12/2011 for the course ACCOUNTING 221 taught by Professor Staff during the Spring '11 term at North South University.

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Sources of finance for a start-up business -...

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