Capitalism and Rome are not built in a day. It takes quite a while to build up your own business capital. Till such time, you have got to use others money. Here are some tips on using others money in your business. For easy reading, I have categorised using others money in three major phases: Initial Capital, Operational Phase and Growth Stage:
Initial Capital
At the time you start a business you need what we call as seed capital. When you are short of this money you must find alternative sources to supplement this shortfall. Here is a list of such sources:
1. Small Business Corporation. Most countries run a Small Business Corporation that lends portion of your capital in easy terms
2. Venture capital Companies: If you have an excellent business idea that can be turned into a successful venture you must consult with venture capitalists and obtain finance
3. Government Grants: In addition to provide loan capital there are grants made available by the Government Institutions for businesses
4. Informal sources: You can also get initial capital from family & friends on no-cost basis or in concessionary terms
Operational Phase
When you move into operational phase you get receivables and creditors. You will also require a whale of a lot of money for operational expenses such as salary & wages, utility and statutory payments. Here are effective tips:
1. Negotiate very favourable terms from your creditors. These terms should cover bulk discounts, extended period of credit, timely delivery schedule and stand-by measures
2. You should, as matter of fact, encourage cash sales and when you are faced with a credit sale you must ask for an advance; where you are getting bulk buyers on credit terms get some short of deposit from the debtors
3. Obtain a Working Overdraft / Operational Line: Banks generally extend working overdraft/operational line of credit for financing working capital. Your seasonal ups and down in money needed to finance working capital can be smoothened by this arrangement. Furthermore, these credit lines also offer safety valve in paying your operational expenses including salaries, wages and utility payables
Growth Stage
As your business notches up on to the growth stage, your money requirements change in terms of quantum and period. Now you need more money and for a longer duration in order to expand as well as to finance the growth of business. Here are good tips:
1. Go for a Fixed Loan/Term Loan: Generally banks and finance institutions offer term loans for long term capital requirements such as buying into fixed assets or improving existing fixed assets. In some cases you can also acquire new assets as well. In the latter case, there is an alternative in the form of equipment leasing
2. Issue Preferential Shares: These shares may be issued with a stated interest rate and made redeemable on a future date. I recommend the issue of preferential shares over equity shares because preferential shareholders are not entitled to take part in running of a business whereas equity shareholders can control the management of a business
But wait a minute. Do you possess the required cosmics for using others money in your business. If you have the right cosmics you can prosper on others money. What are cosmics? Cosmics are aspects residing within you shaping and influencing your business though these are un-seen and un-noticed by you. So first and foremost check whether you have supporting cosmics that enable you to use others money successfully.
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