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Five Greatest Ideasfor
Financing Your Business

Introduction

If everyone had to finance their own businesses entirely, only the rich could even get
started. Luckily, aswell asyour money - the share capital of the business - you can
also get loan capital on a long- or short-term basis. So you need to think about some
of the implications of this 'betting with someone else's money'. We will look at this
again in the section on acquisitions. For the moment let's introduce two great ideas
at the root of any business, cashflow. Idea 28, and leverage, Idea 32.

Idea 28 - Live by the two greatest financial mantras

Here are the watchwords of the realist, one from a banker and one from the director
of finance of a local authority.

First greatest mantra: 'profit is an opinion, cash is reality'

A small builder has, say, two assets on his balance sheet, amongst others. One is a
fixed asset of a cement mixer. It was purchased last year and the accountants agreed
to its being written off over five years. The other is in his current assets and is some
bags of cement. These are in stock and are valued at cost. His profits this year are
reduced only by the depreciation on the fixed asset i.e. one-fifth of its price when
bought. This could of course be very different from its value; indeed it is highly
unlikely that second hand it will get nearly the residual value the balance sheet