Getting the Money

Now that you have computed your initial capital requirements, where will you get the money? The first source is your personal savings. Then relatives, friends, or other individuals may be found who are willing to "venture" their savings in your business. Before obtaining too large a share of money from outside sources, remember you should have personal control of enough to assure yourself ownership.

Once you can show that you have carefully worked out your financial requirements and can demonstrate experience and integrity, a lending institution may be willing to finance part of your operating needs. This may be done on a short term basis of from 60 days to as much as one year. Any institution that has money to lend is primarily concerned with security. The security may be a business asset, but when you're just starting the best security is usually your home or some other personal asset.

The second thing the lender will want to see is some sort of business plan. If you complete a business plan - which includes a cash flow forecast - the lender will see that you have done some serious and realistic thinking about your business and be more likely to consider your request.

Become acquainted with your banker. In selecting a banker consider progressiveness, attitude toward your business, credit services offered, and the size and management policies of the bank. Is the bank progressive? The physical appearance of the bank may give you some indication. When the employees are reasonably young, interested in your problems and active in civic affairs the bank is likely to be progressive. The character of the bank's advertising may also be a clue to its progressiveness.

To be effective the banker should be interested in helping you to become a better manager, and build a continuing relationship that will mean profitable business for you and the bank over the years.

Will the bank offer you the kind of credit you need? For example, if seasonal accumulations of inventory become a problem will the bank make a loan against public or field warehouse receipts? If your capital is tied up in accounts receivable during your heavy selling season, will the bank take these receivables as security for a loan? Will the bank consider a term loan?

Finally, know the size and management policies of the bank. Will your maximum requirements fall well within the bank's "legal limit"? If you plan to do some export business, does it have a foreign exchange department? If you or your dealers sell on installment terms does the bank have facilities for handling installment paper? How deeply is the bank concerned with the growth and prosperity of your local community?

When you deal with your banker, sell yourself. Whether or not you need a bank loan, make it a practice to visit your banker at least once a year. Openly discuss your plans and difficulties. It is the bank's business not to betray a confidence. If you need financial assistance carefully prepare, in written form, complete information that will present a thorough understanding of your entire proposition. Many business-people or prospective business operators destroy their chances of obtaining financial help by failing to present their proposition properly. Remember, before a banker will make a loan he/she must have satisfactory answers to questions such as these:

1. What sort of person are you?

2. What will you do with the money?

3. When and how do you plan to pay it back?

4. Does the amount requested allow for unexpected developments?

5. What is the outlook for you, for your line of business, and for business in general?

Trade creditor or equipment manufacturer, Companies from which you buy equipment or merchandise may also furnish capital to you in the form of extended credit. Manufacturers of store fixtures, cash registers, and industrial machinery frequently have financing plans under which you may buy on an installment basis and pay out of future income. You need not pay for the goods at once. If goods are for resale, no security other than repossession rights of the unsold goods is involved. However, too extended a use of credit may prove expensive. Usually cash discounts are quoted if a bill is paid within 10, 30, or 60 days. For example, a term of sale quoted as "2-10; net 30 days" means that a cash discount of 2 percent will be granted if the bill is paid within 10 days. If not paid in 10 days, the entire amount is due in 30 days. If you do not take advantage of the cash discount, you are paying 2 percent to use money for 20 days, or 36 percent per year. This is high interest. Avoid it.

One of the principal causes of failures among businesses is inadequate financing. If you do go into business, remember it is your responsibility to provide, or obtain from others, sufficient money to supply a firm foundation for your enterprise.

Say that you're the type who's beginning new small business. You Have given attention to the overall chances for success, and have
selected the new company you want to establish.

What technical problems will you face in starting the business? How Much money will you need for beginning new small business?
Where can you obtain it? What kind of business organization will you have? Where should you find the business? (start business
tips to follow along )

The very first question you need to reply is: Just how much money will I need? However, this question can not be answered until
several other questions are answered and several choices are made.

To Determine how much cash is Required to start a company, enter all Of your prospective income and all of your planned expenses
on a job sheet or kind.

Though you may feel that this kind of planning is more than You have to initiate a simple small business it's beneficial to begin
with this particular approach to management which puts figures down in black and white. You'll discover the same approach valuable
within an established business.

First, estimate your sales quantity. This will depend on the total Quantity of business in the area, the number and skill of
competitors now sharing that business, and your capability to compete for the customer's dollar. Obtain assistance in producing
your sales estimate from wholesalers, trade associations, your banker, along with other business-people. A number of company and
statistical books could be useful in making sales volume quotes.

In reaching your final quote of sales don't be over-enthusiastic. A brand new company generally develops slowly at the start.
Should you overestimate sales you are most likely to spend too much in gear and first stock, and commit yourself to thicker
operating expenses than your actual sales volume will warrant. As you're just starting up you may have no sales for the first
couple of months. At any rate you may expect your first few weeks to be quite low.

You must also decide what proportion of your sales will be cash And what proportion will be offered on credit. If you estimate
that a particular portion of the earnings are going to be on charge then you have to figure whenever you're likely to have the
money for these sales. One month? 2 months? More? Never?

In our guide to beginning new small business, estimate how Much money will be paid out. Bear in mind in starting a business you
might be purchasing gear, paying fees and licenses, which makes deposits on lease, utilities and so forth, several months until
you open the door. A few of those expenses are simple to estimate. In case you've decided to lease a building (more about this
later) then you know what your deposits will be and how much you'll have to pay out each month. You can probably get the expense
of fees, permits and utility deposits with a couple of telephone calls.

Other expense figures may take a little more work to get. One way Is to acquire typical operating ratios for the kind of company
in which you're interested. One of the resources for such ratios include Dun & Bradstreet, Inc., trade associations, publishers of
trade magazines, technical accounting firms, industrial companies, and schools and universities. The typical ratios for your type
of business multiplied by your estimated sales volume will serve as bench marks for estimating the various items of expense.
However, do not rely exclusively on this method for estimating each expense item. Verify and modify these quotes through
evaluation and quotations in the particular market area in which you plan to operate.

Do not forget to pay yourself too. You may need money to live on if You have to quit your job. If your partner is working and may
encourage the family for some time you might not have to withdraw cash from the business. The longer you can go without taking
cash from, the quicker you will develop a strong cash position. Now that you have estimated your money receipts and expenses,
write down the amount of cash you will put in the company to start. This goes on line 1 in the example below. Then add lines 2 and
1 for your first month to get line 3. Then add up all the expenses to find line 5. Subtract line 5 from line 3 to find line 6.
This money in the end of month then goes to line 1 to the beginning of the next month, etc.

Should you continue this for the Whole year, very shortly you'll find You've got negative amounts or even a negative cash flow.
About this time you will also understand that you ought to be operating on this kind with a pencil which has a fantastic eraser.

In this overly-simplified case, you notice that by the end of June you are minus $200 in money. Two solutions can be attempted -
reduce your buys in June by $200 or start with $200 more. You may be unable to reduce costs (they will likely go up as your
business starts). So you'll need to put in $200 more to start with. If all you have is $4000 then the extra $200 you need is
funding you need to get from someplace else.

Don't be fooled by this very simple illustration. Many small businesses Begin with the $200, and try to acquire the $4000 from
somewhere else. Since a Major reason for failure in the early phases of a company is Under-capitalization, be very careful in your
preparation at this stage. You can Almost always aim on some unexpected expenses and a few delays in expected income.

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