Page 458 - Business Principles and Management

project:
MY BUSINESS , INC.

A very important step in financial planning for a new business is deter-
mining the amount of capital needed and the sources of that capital. Most
new businesses fail because they do not have adequate capital to operate
the business until it becomes profitable. You have already estimated your
financial needs in the Chapter 15 activities. Now you need to develop a
plan to obtain the capital.
Your plans should consider both immediate and long-term needs, the
type of ownership structure you currently have and whether you want to
retain or change the form, and whether you believe it will be possible to
obtain equity capital, debt capital, or a combination of both. If you choose
equity capital, how will it affect your role as owner and manager? Will
your business benefit in ways other than having additional capital? If you
choose debt capital, how will you be certain your business will be able to
repay the debt when it becomes due? What will happen to your business
if you are unable to meet the debt payments? What are other possible
consequences of your decision for the business?

DATA COLLECTION
1. Identify three sources of long-term financing for your business. For
each source, determine the (a) amount of capital available, (b) interest
rate, (c) amount and type of security needed, and (d) procedures for
obtaining financing.
2. Identify three sources of short-term financing for your business.
For each source, determine (a) what the financing can be used for
in your business, (b) what the terms of financing would be, and
(c) what information would need to be provided to obtain the
financing.
3. Ask several small-business owners how they obtained the initial
financing for their businesses. Have them identify problems they
have faced in financing continuing operations and any expansions.

ANALYSIS
1. Based on the amount of capital you will need to start your business
and operate it for six months, determine:
a. the amount of money you can personally invest
b. the capital available from family and friends, and how you can
obtain and repay it
c. sources for the remaining capital needs, interest rates, and proce-
dures for obtaining the capital
2. Develop a written request for funds that can be presented to prospec-
tive investors. It must contain enough specific information to encour-
age them to invest money in your business. Develop the request on a
computer so it has a professional look when printed. Provide support-
ing data, including the appropriate financial information and graphs
or charts showing the source and amount of each type of capital.

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