How to Effectively Finance your Business by Small Business Accountants
There is no business without effective financing. Without gathering the appropriate finances for your small business, your business is unable to grow. Having access to cash whenever its needs allows your business to turn accounts receivables into cash faster, forecast cash flows more accurately, boost sales, and improve the overall quality of your business. When financing your business, you have two options: debt and equity financing. Debt is when you borrow an amount of money and pay it back generally with interest. On the other hand, equity finance is where you get funds by selling a share or percentage of your business to investors. Equity finance can be acquired by looking for investors or having your business go public. Here we M.A.S Partners, the leading small business accounting firm in Sydney, understand the importance of financing your business, and have provided some tips on getting such resources.
What Type Of Funding?
When deciding what type of funding, you must decide what you as a business owner value, and what your risk tolerance is. When financing your business through debt, you have an obligation to pay it back over time, and as such can be riskier if you are not profitable. On the other hand, financing your business through equity can be risky if your investors expect to turn a large profit. However, there is a limit to how much equity you can give, whilst remaining in control. As such, you must decide how much you value the ownership of your business, to decide what funding you want. In addition, debt is generally harder to acquire if you are a startup or have poor credit history.
How Much Funding?
Deciding exactly how much funding your business needs can be a difficult task. When trying to grow your business through funding, you must make a budget which lists all the costs involved in making improvements and get an accurate estimation for each item. You should work out what will happen to your operating costs after your expansion using the funding, such as inventory and staff costs. You should calculate whether or not the expansion is worth it- figuring out if the return will be worth the risk.
If you have decided on going the equity financing route, you should consider how you will find investors. The main sources of equity financing are angel investors, equity crowdfunding, venture capital firms, friends and family, and business incubators and accelerators. Due to the show “Shark Tank”, angel investors have shown to grow in popularity, where they are wealthy individuals who invest their own money in exchange for a share of a business. Since they are one investor, investing a large percentage of your business, they generally want to be involved in business decisions and will offer help.
Consider Small Business Accountants At M.A.S Partners
Our small business accountants at M.A.S Partners have a driving passion for helping businesses grow and develop. Either through their advice or their taxation lodgements, we are here to help. Hiring a small business accountant when financing your business is a must due the risk. With our expert advice, we are able to give you all the facts, and keep risks to a minimum. For more information about our small business accounting services, click here.