Question

1. Describe the financing considerations of an entrepreneur. Explain the financing mix that you project to use for your business idea during the idea development and start-up phases.

Answer 1

Finance related issues of a company must be dealt with utmost care. These issues could make or break the company. The entrepreneur must take into consideration a lot of factors. One of them are as listed below:

1. Minimizing costs: Pusrcahing items which are adequate for the start-up phase. Prioritizing the items to be purchased gives a lot of idea on how to reduce the costs.
2. Monitoring the investment: Most important thing for a start-up to do is to maintain adequate reserves of money. To do so, the invested money must be monitored to observe the allocation of the reserves.
3. Investment: Investing where only necessary and plausible in the long term is the best way to start up a business. If the projected plan contains substantial amount of financial risk, it is better to opt out of the investment.
4. Credit: Other than investments, credits might be needed to get the business going. Credits are nothing but loans. Fulfilling the credit balances timely gives more cushion to get the funds in future. Limit will be increased if the loans are periodically paid. This is called revolving credit.

Financing mix must be designed beforehand, that is before start-up phases. This gives a clear idea on how to proceed with the business. Two strategies are widely used. One is debt based and other is equity based.

Debt based financing mix is concerned about taking debts and clearing them periodically. If the profits are not adequate, debts cannot be cleared and the business will be in jeopardy.

Equity based financing mix is about giving shares to various investors so that the risk will be less in future. But the decison taking control will not be in our hands.

Of these two strategies, Equity based is better for start up phases because of the less risk involved. Business should never be in jeopardy, for this the decision taking control can be compromised.