05_-_Small_Business_without_Debt

05_Small_Business_without_Debt

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Unformatted text preview: og"! Apart from tax the other major reason to lease or purchase an asset on HP is that the proportion of the purchase that can be financed is often greater using one of these arrangements than a loan (see security table above). 8 Sources of Venture Capital under £250,000 Flowchart Now that you have considered the questions, use the flowchart at the back of this publication to guide you to the main element of a suitable financing package. Forms Of Finance You have now considered the questions and used the flowchart. If venture capital is suitable for your business read through the rest of this section to confirm your understanding and check that you are making the right decision. If venture capital is not suitable for you, read about the other forms of finance in the glossary and consult one of the organisations listed in the section "Sources of advice." If venture capital is right for you, remember that there are strict rules governing the sale of equity to the public, which are set out in the Companies Act 1985 and the Financial Services Act 1986. In addition you should consider your company's Articles of Association. If you are interested in selling equity in your business consult your business adviser who will be able to help you decide on the next steps and will also help you obtain professional advice to ensure that you do not infringe the Financial Services Act. Venture Capital Venture Capital is the term given to selling a share in your business to someone else. You new partner might be a venture capital fund, another business or a wealthy individual. A sale of equity could help reduce the business' interest charges, but in the long run may well he more expensive than other forms of finance because your equity partner will require a high rate of capital growth and now owns part of the business. An equity investor is typically looking for capital growth of 35% plus. The initial costs of an equity sale may also he significant, particularly if it is necessary to issue a prospectus to comply with the Companies Act 1985 or an investment advertisement to comply with the Financial Services Act 1986. However the equity sale could help to give the business financial balance. Businesses which have too little equity or too much debt are said to be highly geared and, like a highly geared machine produce good results while they work but are in danger of breaking down completely if things go wrong. They are risky businesses. By selling equity you reduce the level of risk in your business and you share the reduced risk with your new partner. In addition the new equity may provide a sound base for raising further debt finance or to invest in research and development if retained earnings are not sufficient. It is widely believed that an equity sale means giving up an element of control and technically this is the case. But remember that other types of financier can also influence the way a business is run. Also your new partner may have different skills to you gained from having helped other businesses grow, perhaps fi...
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This note was uploaded on 02/27/2013 for the course GBMT 300 taught by Professor Javierwujie during the Summer '12 term at Wisconsin.

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