Question

Financing of the business

Sole proprietorship:

Corporation:

Answer 1

a. Sole proprietorship- You have some financial savings such as an pension fund or a rainy day fund, so it makes sense to spend the money to start and develop a company. In fact, if you don't yet have any income to reinvest in the company or any personal assets to secure a bank loan, it could be the only investment opportunity open to you in early days. On the plus side, an investment by an owner is a cheap source of finance, because the cash is essentially a gift to yourself.Family and family are the most likely individuals to trust in you and are common funding targets for sole proprietorship companies. Yet mixing business with your personal life can be dangerous. If the company breaks down , then you could risk a relationship that is important to you. Reduce the chance by taking the investment carefully and handling it in the same manner as you should consider a bank loan.

Retained earnings are the gains made above and beyond what you use to cover your day-to-day costs in previous years of trading. They are one of the best sources of funding for a sole proprietorship because the capital already belongs to you and you can do anything you want. Many sole proprietors use retained income to fund acquisitions of new machinery to keep the lights on during sluggish trading hours.

b. Corporation- Factoring is a form of financing in which a business buys its receivables at a loss in order to get cash up front. This is mostly used by low finance firms or by businesses like clothing suppliers, who have to carry out orders well before they get paid. It's a expensive way to raise funds though. Companies who sell receivables usually incur a fee which is a proportion of the overall volume

The use of a credit card to finance the company is a highly dangerous endeavor. Falls back on your bill and having your credit report whacked. Pay just the minimum every month and you will build a pit from which you can never get out. Nonetheless, a credit card used wisely will help you out of the odd bind and even stretch the repayment time on your balances to beef up the cash flow.

With banks hesitant to take any risks in the aftermath of the financial crunch on their own capital, loans are backed by the US. Small Business Administration is a hot commodity. Nonetheless, assets have run out a range of times to help preferential discounts on rates and incentives on SBA-backed loans