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Raising Small Business Finance: Beefing Up Your Balance Sheet

Sep 17, 2008
As a small business owner it's likely that you will have experienced liquidity problems. In fact, more businesses fail through poor cash flow than anything else, according to statistics published by BERR. Through ensuring you have a strong balance sheet you will be able to fund day-to-day operations, and take advantage of growth opportunities when they arise.

Not Raising Too Much Money

On many occasions businesses will raise too much money. This causes problems for the following reasons:

* You will get a lesser return on the capital employed within your business, and this will damage earnings per share or make interest repayments more significant. You also, though, have to ensure you will have enough money to tide over should earnings fall or unexpected expenses come into play.

* You may try and grow the business too quickly, and fail to get the correct foundations in place to support growth.

* You may become too lax with spending, take on too many staff, and assume expenses that do not do enough for the bottom line. Remember, though, it's also possible to cause significant harm to your small business through being unwilling to invest in its future.

Venture Capital

Raising venture capital is often one of the more popular ways for a small business to finance their operation. Often a small business will have a lack of financial history or revenue to make a bank confident about a loan. On the other hand a VC firm may be willing to assume this risk knowing there's also the potential for much reward if things go well. A VC firm will generally be looking to invest in a business that has a disruptive idea, a strong management team or a key advantage over their competitors. You should be looking to pitch a large number of VC firms, more than 20, if you want to be able to raise money at a strong valuation. If there are firms with a focus on your sector, you should make sure you approach them.

Bank Loan

Bank loans will often be hard for a small business to get their hands on. If you are able to get a small business loan, however, this will often be a much cheaper way of raising money than through venture capital. It may be worthwhile to look at both methods, and see if you feel the valuation is fair. A VC firm will often claim to bring more to the table than just money, and this will often be true.

Personal Money

Using your own money to fund your small business can be a smart move, and is often the cheapest - but also the most risky too. You could remortgage your home, borrow against the value of your assets, or even sell your assets.

If your business is struggling for funding to fuel growth you can also choose not to pay yourself and other shareholders a dividend. That way earnings are going straight back into the business.
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