The key to small business success rests mostly on the ability of the entrepreneur to raise an adequate amount of funds for infrastructure developments as well as meeting day-to-day working capital needs. For that reason financial needs planning for business are essential. Let’s discuss the matter.
One of the first questions a potential entrepreneur must ask is, “Where do I get the money?” The type of business may have been decided, the plans made, the legal steps taken, and the financial projections carefully worked out.
But without the necessary fuel (money), the ship ‘enterprise’ will not get off the ground. Plant, or fixed assets, financial needs include purchasing land and buildings (if a new business is to build rather than rent), machinery and equipment, furniture and fixtures, and business vehicles.
Financial information pulls together all the information presented in the other segments of the business: marketing, distribution, manufacturing, and management. It quantities all the assumptions and historical information, concerning business operations.
Financial needs planning for business
Before individual leaves on a date or takes the family out to a local restaurant, he or she will usually check his or her financial resources to make sure that he or she can pay for the evening.
Planning the financial needs of a business is very important. While estimating how much money they need, entrepreneurs must know what they plan to do. Unfortunately, many entrepreneurs do not, often because they have failed to work out a business plan.
Yet the very act of preparing such a plan enables entrepreneurs to crystallize their thinking on how best to launch their ventures. It forces them to move logically and systematically from the stage of dreams and ideas to that of concrete action.
It is the concretization of business plans that helps entrepreneurs determine their financial needs. The owner or the manager of small business needs to be able to ask the following questions:
1. Why does he need the money? Expansion is the answer one individual will give. Another will give remodeling as an answer.
A third person will state that they need the money to start a new business. There are many reasons why money and capital are needed in small businesses.
However, it is important to be very specific about the amounts and the kinds of money that are necessary. The general areas of need for money are:
- Starting a new business,
- Remodeling, and
- Improving cash flow or working capital.
2. How much money will he need? It is important to be able to specify how much money the entrepreneur will need.
It is advisable when doing any financing to be able to stipulate the amount of taka that the entrepreneur will be using and to specify if it is to be used to buy a new car, purchase inventory, pay salaries and wages, or event to be used to purchase new equipment.
3. When will he be able to repay the money? A major criterion for any financial position is an understanding of repayment ability.
Friends, bankers, are business associates are always interested in knowing when and how you anticipate repaying loan. The majority of loan repayments come from sales of merchandise and inventory.
4. Where will the obtain the money? Most small business owners will obtain additional money from banks, friends, or relatives. There are many times when it is preferable to use banks.
However, it is often advisable to use your own personal savings or to encourage friends or relatives to invest in small businesses.
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