Sourcing Finance

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It is essential for an entrepreneur to source finance for setting up his business venture. Finance is considered the life of any business, venture or project and is required for commencement, continuation and expansion & growth of a business.

It is also important to ensure continuity of inflow of funds for smooth functioning of business operations. An entrepreneur must make a financial plan while starting a business to have a clear picture of how much money will be required, capital requirement for various purposes.

Some of the Factors considered while making a Financial Plan

• Company's financial objectives
• Company's nature and size
• Company's growth and expansion plans
• Capital market trends
• Government regulations related to industry

Types of Financial Requirement
A newly set up business requires two kinds of capital:

• Fixed Capital: Can be defined as a capital required for fixed assets. It is continuously invested in the business in physical and real form. It is used for purchasing fixed assets including plant & machinery, land and building, vehicles and equipment etc.
  
  
• Working Capital: Can be defined as the capital required for current assets of a company. A newly set up business requires to purchase raw materials, pay wages and salaries, rent, fuel, electricity and water, etc. All the funds required for these items are met by the working capital.

Methods of meeting Financial Requirement
Every company has to source or raise funds for both short and long term. The total requirement of finance depends on the size and nature of business. A sole proprietorship/ partnership are generally started on a small scale and thus do not require large funding.

They can finance their business from:

• Investing personal savings
• Taking loan from friends and relatives
• Taking loan from various public and private commercial banks
• Taking loan from leading finance companies

A public company will require large funding and can source the same from

• Issue of shares
• Issue of debentures
• Taking loan from financial institutions
• Public deposits
• Reinvesting profits

Short term capital needs of a business can be met by:

• Trade credit
• Cash credit
• Bank overdraft
• Factoring