PLANNING YOUR FINANCIAL REQUIREMENTS
PREPARING TO BORROW:
Although the large corporation is perhaps the most visible of all enterprise in a Country's economy, accounting for the highest number of employees and the lion’s share of the gross value production, the most common establishment is that small business. Whether it is in manufacturing, in the service trades, including merchandising – that is, whether it produces goods, retails the goods of others, or offers services – small business is a major employer of a country's workforce. In most places, 95% of the businesses employ fewer than 50 people.
Yet success in this field calls for special qualities of perseverance, business know how, and a high degree of initiative. Business is never static: it is subject to many influences, over some of which it has little or no control. In the very small business, the owner manager can call upon few experts in his own company: in many respects, he/she is the company must learn to meet, dodge or roll with the punches.
Today, However, because of the importance of small business in a market economy, help is widespread: from government departments, boards of trades and chambers of commerce, trade associations, local development corporations, professional accountants, financiers, lawyers, business, consultant, and many others. There are times when advice should be sought and, if necessary, bought.
It is the rare business enterprise that has sufficient capital of its own to set up and operate without recourse to bank lending or other sources of external finance. Unlikely to be able to offer company bonds or stock to the public and, unless it is a most unusual type of enterprise, cannot attract private venture capital, which looks for quick growth and fast returns.
Even your neighborhood banker, finance company, or credit union will want clear assurance that your business organization or proposed business organization is sound enough to meet competition profit. That profit must be sufficient, over a reasonable period of time, to repay money advanced to your business.
Government sponsored and other lending institutions will want to know the grounds on which you base your optimism and the kind of forethought and market research you have already put into your project.
They will, therefore, all want to review your past financial history or financial projections to see that you will remain solvent and be able to replay their cash advances. These may be backed by a mortgage on property, or a line of credit against accounts receivable, to mention just two forms that their financial assistance might take. Their concern is natural, for the management of this institutions is responsible to someone else for their stewardship – to shareholders, bondholders, or the taxpaying public.
The first step in preparing to borrow is to draw up a business plan. This fulfils three functions: it helps to clarify your business goals and the resources you have to achieve them, it helps keep you business position clear and it is an important document to offer when you do seek outside capital.Next :The Business Plan