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A Business Plan Essay

1825 words - 8 pages

Carrie ChildsBusiness 2051. What is the purpose of a business plan and why is it an essential first step for a start-up firm?A business plan precisely defines your business, identifies your goals, and serves as your firm's resume. The basic components include a current and pro forma balance sheet, an income statement, and a cash flow analysis. It helps you allocate resources properly, handle unforeseen complications, and make good business decisions. Because it provides specific and organized information about your company and how you will repay borrowed money, a good business plan is a crucial part of any loan application. Additionally, it informs sales personnel, suppliers, and others ...view middle of the document...

As with debt financing, additional equity often comes from non-professional investors such as friends, relatives, employees, customers, or industry colleagues. However, the most common source of professional equity funding comes from venture capitalists. These are institutional risk takers and may be groups of wealthy individuals, government-assisted sources, or major financial institutions. Most specialize in one or a few closely related industries. The high-tech industry of California's Silicon Valley is a well-known example of capitalist investing. There are many sources for debt financing: banks, savings and loans, commercial finance companies, and the U.S. Small Business Administration (SBA) are the most common. State and local governments have developed many programs in recent years to encourage the growth of small businesses in recognition of their positive effects on the economy. Family members, friends, and former associates are all potential sources, especially when capital requirements are smaller. There are several sources to consider when looking for financing. It is important to explore all of your options before making a decision.Personal savings: The primary source of capital for most new businesses comes from savings and other personal resources. While credit cards are often used to finance business needs, there are usually better options available, even for very small loans.Friends and relatives: Many entrepreneurs look to private sources such as friends and family when starting out in a business venture. Often, money is loaned interest-free or at a low interest rate, which can be beneficial when getting started.Banks and credit unions: The most common sources of funding, banks and credit unions, will provide a loan if you can show that your business proposal is sound.Angel Investors and Venture capital firms: These individuals and firms help expanding companies grow in exchange for equity or partial ownership.A source of venture capital is the SBA's Small Business Investment Company (SBIC) Program. SBICs, licensed and regulated by the SBA, are privately owned and managed investment firms that use their own capital, plus funds borrowed at favorable rates with an SBA guarantee, to make venture capital investments in small businesses.3. What are the advantages and disadvantages of different sources of funds?Advances From Suppliers - This arrangement works if you have a contract in hand for your goods or services.The example of a childrens clothes designer who received a large order from a department store. She didn't have enough money to buy the necessary fabric, so she negotiated a deal with a textile mill to provide her with the cloth in exchange for a percentage of the income from the sale of her clothes to the department store.Credit Card Advances - Yes, it's tempting: there's no loan application or other red tape. And for a limited purpose - perhaps buying some basic home office equipment - using a credit card can make...

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