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Member You - Investors, or a Loan: How Do You Know What Type of Capital is Best for Your Business?
With cell phones, PDA’s and instant messaging we continue to seek devices and software that will allow us to accomplish multiple tasks efficiently and effectively. Survival of the swiftest has been the business mantra for some time.Remember the story of the tortoise and the hare? The hare is swift, and when the race begins he feels he can easily put a great deal of distance between himself and the tortoise. Thinking his speed will allow him to overtake the tortoise at will, the hare decides to eat and rest. Though the tortoise is slower, his pace is steady. He never stops or slows. Due to the hare’s reliance upon speed, and his lack of focus on the goal (the finish line), he doesn’t win the race. The tortoise is the victor.Slow and Consistent Are Appreciated TooThis story came to mind when thinking about my mechanic. He is an independent mechanic with a small repair shop and one helper (sometimes two). His premise
Turnaround-- the company has been operating for a number of years but is underperforming. A hard turnaround refers to a company that is not only underperforming, but has been in a cash deficit position with little hope of returning to a positive position without major restructuring.
What Is The Financial Condition Of The Company?
In certain situations the company's financial condition will suggest one kind of capit
The mere existence of resources in a country is no guarantee they will contribute to output. Multinational enterprises (MNEs) may enable idle resources to be used. Oil production for instance, requires not only the presence of underground deposits but also the knowledge of how to find them and the capital equipment to bring the oil to the surface. Production is useless without markets and transportation facilities, which an international investor may be able to supply. Access to foreign markets, particularly the investor's home market, may be particularly important to developing countries that lack the knowledge and resources necessary to sell there. Additionally, another less tangible aspect of Foreign Direct Investment (FDI) is greater resource utilization. Through exposure to new consumer products, the local labor force may develop new wants, which could encourage them to work longer and harder to acquire the additional goods and services.<
The answer is dependent on the answers to several questions: Why does the company require additional capital? What stage is the company at? What is the financial condition of the company? How much capital is required? What constraints will the financing source put on the day-to-day operations of the company? And finally, what impact will the financing source have on the ownership of the company?
Why Does The Company Require Additional Capital?
The reasons funds are required, or how they will be put to use, may lend themselves more to debt than to equity or vice versa. Debt is often a source of funds for the day-to-day operations of the company or to refinance a current loan. Expansion capital can be debt or equity. Start up funds most often come from equity sources. A turnaround situation, refinancing a delinquent loan, covering a deficit in revenues, could be either, but in these cases the financing will come with a high price.
What Stage Is The Company At?
Companies grow through several different stages: seed, start-up, first stage, and second stage. The stage of the company can be an indicator of the risk involved. While neither debt nor equity would be prohibited at any stage, the older and more established the company is, usually the less risky it is.
Seed Stage--the idea for a product or company is in the mind of the founder, but there is still substantial research and development necessary to determine whether the idea is viable.
Start-up--the company has a business plan, a defined product, and basic structure, but little or no revenues are being generated. The product may still be just a prototype.
First Stage--the product is either ready for market, or is generating some revenues. The structure of the company is in place.
Second Stage--full scale production. The company's product has been selling and accepted by the marketplace. The company is ready for a major national introduction of the product or introduction of a second product.
Established--the company has been operating successfully for at least three years.
Turnaround-- the company has been operating for a number of years but is underperforming. A hard turnaround refers to a company that is not only underperforming, but has been in a cash deficit position with little hope of returning to a positive position without major restructuring.
What Is The Financial Condition Of The Company?
In certain situations the company's financial condition will suggest one kind of capita
Discovering and owning a powerful word that reflects you and your business is the true key of successful branding.Some organisations invest fortunes in this endeavour but there's nothing stopping any of us from doing the same at a fraction of the cost.Today I'll introduce you to a simple, low-cost, branding process that will magnetise your business without breaking the bank.Our discovery begins by answering three simple questions:* What Are You Like?* What Do You Do?* How Do You Do The Things You Do?So let's begin...STEP #1 - What Are You Like?Understanding your names (or nouns) can really help to trigger your imagination. If I were to ask what you'd be if you were an animal, you'd feel a certain affinity with a particular animal and quickly be able to answer... Monkey, Cat, Tiger, Lion, Bird, Fish, Dolphin etc.If asked for your profession you'd say one or more of the follow
What Stage Is The Company At?
Companies grow through several different stages: seed, start-up, first stage, and second stage. The stage of the company can be an indicator of the risk involved. While neither debt nor equity would be prohibited at any stage, the older and more established the company is, usually the less risky it is.
Seed Stage--the idea for a product or company is in the mind of the founder, but there is still substantial research and development necessary to determine whether the idea is viable.
Start-up--the company has a business plan, a defined product, and basic structure, but little or no revenues are being generated. The product may still be just a prototype.
First Stage--the product is either ready for market, or is generating some revenues. The structure of the company is in place.
Second Stage--full scale production. The company's product has been selling and accepted by the marketplace. The company is ready for a major national introduction of the product or introduction of a second product.
Established--the company has been operating successfully for at least three years.
Turnaround-- the company has been operating for a number of years but is underperforming. A hard turnaround refers to a company that is not only underperforming, but has been in a cash deficit position with little hope of returning to a positive position without major restructuring.
What Is The Financial Condition Of The Company?
In certain situations the company's financial condition will suggest one kind of capit
Virtual Assistants are fast becoming a popular industry. It is through education that this field is beginning to truly grow. Hopefully someday soon people will be asking, “Who is your Virtual Assistant?” rather than “What is a Virtual Assistant?” Virtual Assistants are the key to allowing small business owners to truly create a thriving. Before deciding to work with a Virtual Assistant there are six questions that need to be answered.What is a Virtual Assistant?First and foremost, you must understand what the term means. Simply put, a Virtual Assistant is a business owner who offers administrative support, virtually. The International Virtual Assistant Association defines a Virtual Assistant as “an independent entrepreneur providing administrative, creative and/or technical services. Utilizing advanced technological modes of communication and data delivery, a professional Virtual Assistant assists clients in his/her area of exper
Companies grow through several different stages: seed, start-up, first stage, and second stage. The stage of the company can be an indicator of the risk involved. While neither debt nor equity would be prohibited at any stage, the older and more established the company is, usually the less risky it is.
Seed Stage--the idea for a product or company is in the mind of the founder, but there is still substantial research and development necessary to determine whether the idea is viable.
Start-up--the company has a business plan, a defined product, and basic structure, but little or no revenues are being generated. The product may still be just a prototype.
First Stage--the product is either ready for market, or is generating some revenues. The structure of the company is in place.
Second Stage--full scale production. The company's product has been selling and accepted by the marketplace. The company is ready for a major national introduction of the product or introduction of a second product.
Established--the company has been operating successfully for at least three years.
Turnaround-- the company has been operating for a number of years but is underperforming. A hard turnaround refers to a company that is not only underperforming, but has been in a cash deficit position with little hope of returning to a positive position without major restructuring.
What Is The Financial Condition Of The Company?
In certain situations the company's financial condition will suggest one kind of capit
The Hotel Industry has surely seen a roller coaster ride with Hurricane Katrina. Many Hotels along the Gulf Coast were totally destroyed, many were damaged and others in the aftermath remain totally full. So full in fact that finding a hotel with vacancy within 300 miles is nearly impossible. This is a windfall for the Patel Family; the Indians who are quite industrious and often associated with being sole proprietor hotel owners, it is a family tradition. Most Franchised Hotel Chains and Corporate Hotel Chains are also watching the occupancy rates at 100% meaning we will see very interesting third and fourth quarter results. One hotel chain has lst many hotels and we will not even talk about the tourism industry devastation in Gulfport, Biloxi and the Greater New Orleans area? Some say it may never recover, others are certain it will but it is going to take two or more years. Meanwhile Hurricane Season 2005 is hardly over, in fact we are now
First Stage--the product is either ready for market, or is generating some revenues. The structure of the company is in place.
Second Stage--full scale production. The company's product has been selling and accepted by the marketplace. The company is ready for a major national introduction of the product or introduction of a second product.
Established--the company has been operating successfully for at least three years.
Turnaround-- the company has been operating for a number of years but is underperforming. A hard turnaround refers to a company that is not only underperforming, but has been in a cash deficit position with little hope of returning to a positive position without major restructuring.
What Is The Financial Condition Of The Company?
In certain situations the company's financial condition will suggest one kind of capit
“It’s the same old tissue, honey, it doesn’t make a difference, ok? It’s still going to work the same way”, my exasperated husband hissed into my ear as I grabbed cartons after cartons of some ‘designer’ tissue. DESIGNER TISSUE! Hah, can you even hear me say that? I can’t believe I actually wrote ‘designer tissue’. So, yes, for a graphic designer and writer who knows all about the kind of effort one puts into packaging and branding products, I sure fell for it. All the hoopla. The shenanigans. The ‘suck ‘em in with good copy and fab color combo’. Hey, I am still a consumer, remember that. I am entitled to fall for nice packaging, I have a prevailing right to be human.But they are so pretty…the packaging. I swear!They have the ‘nature lover’ packaging, the ‘fruity’ packaging, the ‘woman on the go’ packaging, and then they have the ‘kids’ packaging. I grabbed 4 of each design packages and made a run for the counter with them with m
Turnaround-- the company has been operating for a number of years but is underperforming. A hard turnaround refers to a company that is not only underperforming, but has been in a cash deficit position with little hope of returning to a positive position without major restructuring.
What Is The Financial Condition Of The Company?
In certain situations the company's financial condition will suggest one kind of capital over the other. If the company needs all its cash to fund its growth, then a loan is not feasible, because the company could not afford interest and principal payments. If the company just needs a line of credit to fund a cyclical increase in orders, then it doesn't make sense to bring in an equity investor.
A lender looks at the asset base to secure a loan, and the cash that has been generated to pay the interest. They also look at what other debt or liabilities the company has and very often the debts and liabilities of the owner(s). The old adage that it's easiest to get a loan when you don't need one is close to the truth. A strong balance sheet, top heavy on cash, and light on the side of liabilities is easier to finance.
Investors look at how healthy the company is by reviewing trends in the operating statements and the balance sheet. A company that has demonstrated a positive trend in the past is looked upon favorably. However, the future outlook for the company's product and market is just as important to an investor as the past performance. A company with a somewhat shaky past in a currently booming industry is probably preferable to an equity investor than a great performance in the past in an industry that's on the downslide.
But what if your company is a start-up and doesn't have much, if any, history? Then other factors will be reviewed such as:
How much money the owners contributed to the company.
How strong is the management team.
How dedicated to success is the management team.
What other proprietary assets might be available such as patents, trademarks, goodwill, etc.
What barriers to entry to the marketplace are there?
While both debt and equity come at a price, the company must generate enough cash to repay the principal of the loan and the ongoing interest expense. Equity does not have to be repaid according to a fixed schedule. Equity investors are seeking long-term returns.
How Much Capital Is Required?
A small amount of capital required for a short time is
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