Everything You Need To Know About Business Finance
Funding your latest venture can be stressful and time consuming, but getting business finance right is paramount if you want to stay in the green.
Whether you’re launching a new brand, expanding an existing one, purchasing an asset or borrowing for cash flow purposes - sooner or later, most traders will need to tackle business finance in some form. So where do you start, and how do you know which option is right for you?
Types Of Business Finance To Consider
Not every trader is in the position to approach a lending provider for a loan, and the good news is that it may not always be the best option for you - particularly if you are a start-up or small business. When it comes to navigating the many realms of business finance, what are your options.
Debt Finance - Debt financing is usually offered by a financial institution and is similar to taking out a mortgage or an automobile loan, requiring regular monthly payments until the debt is paid off. While the lending institution has no control over how you run your company, the added expenses of a loan can add pressure if you have limited cash flow, along with dire ramifications further down the track if you are unable to pay the loan back.
Equity Finance - In equity financing either a firm or an individual makes an investment in your business, meaning you don’t have to pay the money back, but the investor now owns a percentage of your business - perhaps even a controlling one. Even if you’re in the early days of trading, it’s crucial to weigh up whether “sharing the throne” is something that you ultimately want for your brand or business.
Mezzanine Finance - Mezzanine capital often combines the more advantageous features of both debt and equity finance. Although there is no set structure for this type of business financing, debt capital often gives the lending institution the right to convert the loan to an equity interest in the company if you do not repay the loan on time or in full. This type of loan is appropriate for a new company that is already showing growth.
Crowdfunding - Ideas or business concepts that may not appeal to conventional investors can often get financed more easily via newer forms of capital raising such as crowdfunding. When pitching a project or business through an online platform for this purpose, it can also be a valuable form of marketing and result in media attention. When done right, it can also transform your investors into your most loyal of customers.
Venture Capital - If you're an Australian start-up or early stage business seeking venture capital, you can approach government sources or private sector funds. A capital provider will want to know why your proposal deserves support. If there is a genuine interest in moving forward, you must be ready for the provider to undertake due diligence on you, your organisation and any technology - so it’s safe to always under promise and over deliver.
A Professional Insight On Business Finance
If understanding your finances or the in’s and outs of business finance isn’t your strong point, then it may be reassuring to know that you’re not alone. In fact, many businesses (big and small) enlist the services of an accountant and business advisor in order to free up their time, while knowing that their financial obligations are already taken care of by the professionals.
What you choose to invest in or shy away from as a business owner can have a domino effect that ripples through your entire team - so are you confident in your financial choices?
At Muro, we are more than just accountants - we offer our clients strategic business advice and ongoing support to help them reach their business and financial goals. Get in touch with us at Muro today to ensure that you’re on the right path for success as we head into 2021.