Business Finance Explained

There are a number of finance options available for the modern day business owner, with each method having its advantages and disadvantages. The focus of today’s blog is to highlight some of the main methods available and to help you judge what source might be right for your business.
With that in mind, let’s get started…

• Investment finance – as the name suggests, it involves selling part of your business (“shares”) to an investor. The investor will also take a share of any profits or losses that the company makes.

The potential advantages of investment finance are that investors can bring new skills and opportunities to the business and also you share the risks of the business with your investors. The drawbacks of this method include the fact that you will own a smaller share of your business and you may have to consult your investors before making certain management decisions.

• Loans – generally suitable for start-up capital or for paying for assets such as vehicles or computers. It’s not a good idea to take out a loan for on-going expenses as you may find it difficult to keep up repayments.
Some of the advantages of loans include the fact that they are not payable on demand, unlike overdrafts, so you’re guaranteed the money for the whole term of the loan. In addition, you won’t have to give the lender a percentage of your profits or a share in your company. However, some of the disadvantages are that loans are not very flexible so you may end up paying charges if you repay early. Also, the cost of repayments for variable rate loans can change, making it harder to plan your finances.

• Factoring – this usually involves an invoice financier managing your sales ledger and collecting money owed by your customers themselves. The invoice financer will buy the debt owed to you by your customer. They make a percentage of the cost (typically 85%) available to you upfront. They then collect the full amount from your customer.
Advantages of factoring include the invoice financier will look after your sales ledger, freeing up your time to manage your business. They can also help you to negotiate better terms with your suppliers.Factoring does have some disadvantages such as your customers preferring to deal with you directly. Also, it may affect what your customers think of you if the invoice financier deals with them badly.

As with anything related to your business, it is best to seek professional advice and consider the pros and cons of any finance decisions. There are many other sources of business finance available and only you can ultimately decide what the correct option for your business is. To find out how Eazi-Apps can help set you up in business, contact us today.