FQA’s On Making Good Financial Decisions

November 7, 2016 1:21 am1 commentViews: 41

By : Alex Williams

decision_1Finding investors and managing company’s cash-flow, are two of the most basic entrepreneurial skills. In initial phases of company’s development, entrepreneurs are required to make many difficult financial decisions. In  order to help new entrepreneurs to scale their company’s finances the right way, we have addressed some of their frequently asked questions (FQA’s) :

How are you going to structure your business?

This seems like a straight-forward question, but many entrepreneurs choose the wrong structure and upload a huge tax burden on their shoulders before they even start doing their business. Entrepreneurs have a handful of options for business structure which includes sole proprietorship, partnership, and corporation.

A sole proprietorship is the simplest to set up and operate, which is why it is recommended for most small businesses. On the other hand, a sole proprietor comes with a limited liability, which means that the personal assets of the entrepreneur can be seized in order to recover the business debt. Most government institutions allow sole traders to change their status to a corporation, after their business starts growing.

If your business will be owned and operated by several individuals, you will want to take a look at structuring your business as a partnership.  The corporate structure is more complex and expensive than most other business structures.  A corporation is an independent legal entity, separate from its owners, and as such, it requires complying with more regulations and tax requirements.

How are you going to get your startup capital?

In order to start their company on the right foot, entrepreneurs need significant amount of start-up capital. Most business owners find angel investors who are willing to invest in small start-up business. Often, angel investors are among the entrepreneur’s family and friends who provide a one-time investment to help the business propel in its early stages. Entrepreneurs also avail business loans or sell their company’s shares through public offering.

Which business loan are you going to take?

decisionSecuring a business loan is an alternative to finding an angel investment. Most entrepreneurs use loans to fund their company’s development. There are many different types of business loans, including:

  • Working capital loans- are short-term loans, which help entrepreneurs keep their business operation running, while searching for another revenue source. They usually come with higher interest than other conventional loans.
  • Equipment loans- enable small business entrepreneurs to purchase all the necessary equipment for the business and pay them in installments.
  • Merchant cash advance- enables businesses to withdraw 125% of their monthly credit card transaction volume and repay it with their daily credit card sales.
  • Lines of credit- provide an available credit line to entrepreneurs where they can withdraw money for their daily cash-flow needs. The credit line enables entrepreneurs to borrow as much money as they need to cover their operations but with interest expense.
  • Professional practice loans- are designed for entrepreneurs who provide professional services, like: health care, accounting, legal services, insurance etc.
  • Franchise startup loans- are designed for entrepreneurs who want to open a franchise business. Most entrepreneurs use these loans for paying franchise fees.

Banks are not the only institutions that offer business loans. Those entrepreneurs who are not eligible for bank loans can try credit unions and lending companies. ALC Commercial’s business loans for example, allow loans to entrepreneurs with limited cash reserves and without collateral.

How are you going to sell your product?

Entrepreneurs need to have an established sales structure, long before the first products come out from their production line.  During the initial business planning phase, the entrepreneurs need to determine their product margin and packaging, as well as whether their products are going to be sold individually or wholesale.

Making smart financial decisions will save your business from tough consequences, which may include: slow sales, losses, higher tax rates and eventual bankruptcy. If you’re not a financial expert, consulting a financial adviser before making a difficult decision can save your company from consequences that lure behind every market corner.

 

This article was written by Alex Williams.  Alex is a journalism graduate and a rookie blogger who was born and raised in beautiful Sydney. She believes that article writing is the perfect opportunity for presenting herself to wider audience so she could get the chance to showcase her expertise and receive recognition. She is a regular contributor at BizzMark Blog.

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1 Comment

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