Retail Book Store

Last year I had commenced a Used Book Store business and for its financing purpose I took assistance from my uncle, who is tremendously wealthy.

When he listened to my idea and I told him about the present and future goals I had in mind for my business, it appealed to him so much that he agreed to provide financing for my business. If I continue to fund from my relative then I would be given easy installment for payback but the fact that he can dictate his terms on me are also possible as he has invested most of the capital in the business.The fact that a family member is giving me funding for my business will make other feel that I am incompetent and can’t run the business on my own and that I need backing from a strong party to keep my business running. This will reduce my self-esteem and will make me feel less confident as the feeling that “this success didn’t come because of my hard work but because of uncle benevolence on me “will cross my mind and make my life miserable. There is also the possibility that my uncle and I have a fight and he withdraws all his investment from the business.

So deciding on an alternative form of funding is very crucial and the no one knows what twist and turns the future has to offer. The alternative sources of funding that I can utilize for my business is primarily through debt or equity. I could either borrow funds or encourage people to invest in my business each of these alternatives will have different affects on the accounting statements and taxes for the business. In debt financing the company can take loans, bonds or even IOUs (any amount borrowed to be paid back with some interest).If I take loan money for my business the interest that I pay out will be an added expense for my business, loans do prove to be more expensive for the business. Additionally if my business suffers bankruptcy in the future the lenders will be the first ones to attain their share invested in the companion the flip side of the coin loans are easier to obtain from a bank or financial institution; since the performance of my company is healthy it will be less complicated for me to get funds for my business and also as I have not taken any previous loans it will be simpler for me to manage getting loans.

Also by going for a loan I do not have to share my ownership with other investors. It is easer to plan the payment period of a loan and attain loans for long and short term purposes. Equity is when you give your investors the right of ownership in the company that is for the amount of cash invested the individual is given a propionate right of owning the business. If I choose this option for the financing of my business I will have to give the investors dividends, or in other words give them a share of a profit that my business earns.The goals of these investors are usually aimed at earning a decent amount of capital gains or in other words increase the profitability of their investment. They are normally not concerned about the well being of the business but with the mounting of their investment.

However if you have angel investors or venture capitalist to assist you with your business they not only provide you with financing but their skills and experience speed up the progress of the business. Generally in smaller businesses there is a great deal of risk involved.Individuals investing are looking forward to more return to compensate for the risk associated with the small business. Additionally gathering finance through equity financing has some legal issues that have to be kept in mind, also the key insights of the business have to be shared with the investors and their suggestions have to be considered as well. This process of raising finance takes time so if I want to finance my business through this way I will have to quickly start the process.With the constant and blooming growth of my business to spread out rapidly, external finance will become a necessity for my business.

If I consider external financing I will spread out the risk factor if I choose equity financing as the investors will also share the loss with me. Additionally if the expansion of my business doesn’t go that steady and I suffer losses and that loss was supported by the loaned money from a financing institution then I will have negative credit rating and it will be difficult for me to borrow money from the financial institution in the future.After considering the pros and cons of the external funding methods I still feel that the loan option will be the best choice for me, as my business is in a good state know so I can easily get loans and I wouldn’t have to go through all the technicalities of IPO (Initial Public Offerings) if I opted for equity financing which also requires a lot of time and paperwork.In order to make sure I don’t end up with a negative credit I will only borrow a small amount in the beginning. I will do a cost/benefit analysis to see if the extra loan taken would be worth the risk or not.

Hence, by using logic I shall evaluate my financial decisions very carefully before taking them.