Financing New Ventures under MBA Program - Essay Example

Financing New Ventures under MBA Program ID Financing New Ventures under MBA Program Developing new ideas and projects is the first challenge that every entrepreneur faces as they try to develop their ventures. These require that they handle each project with much care and allocate their resources well in order to register success they need in managing the project. The development of the project engages a number of phases that may include the planning phase and the implementation phase. All projects require proper planning if they are to yield proper returns for the investors and hence the need to employ critical consideration of all aspects vital in the planning process. The ideas only prove perfect if well implemented and finally prove resourceful to the entrepreneur. The success of these projects requires a good knowledge in resource allocation, which guides all entrepreneurs. They consider a number of options from financing the ventures themselves to obtaining funds from different institutions and developing business relations to create a source of financing for the projects. The details of this study discuss the different means through which new ventures are financed and the challenges that entrepreneurs face in financing these ventures. Understanding these makes one understand the difficulty of supporting a new venture and anticipate all challenges creating possible solutions for them. Developing contingency measures and better business plans that have detailed financial analysis provides the entrepreneur with the opportunity to obtain funds from different sources if need be. The entrepreneur has evidence of the project and the returns that the project will command giving their investors confidence hence obtaining financing. These and other methods used for financing new ventures are discussed below in details. For a venture to obtain financing from the different financial providers there is need to ensure the viability of the venture. Any viable business venture considers a number of factors including the location that caters for easy identification and strategy over competition. Financing depends on the stage of the plan or venture (Muljadi, n.d). The venture needs to have the following considered in developing. Consideration of the Niche the business lies, proper research on product aspects, staff allocation, experience accumulation, the level of risk and the general market (Ruhnka & Young, 1987). For any financing institution or individual for projects, there is need to prove viability of the project. The ability of the venture to payback is a vital consideration that provides that the investors will obtain their returns after investing or the facility offered in case of a loan is recoverable from the proceeds of the venture. The viability of the venture is proven through the selection of a niche that is accessible. One of the worst fears of any funding organization or an individual is that the niche within which they finance matters. Some markets are so complex and the surety of the returns may seem difficult to identify. Understanding the niche and their financial challenges will reveal the possibility of funding from the financiers. Understanding the market and provides one with an understanding of the challenges and risks involved in this niche hence gauging the possibility of accessing funding. The entrepreneur also needs to have conducted through research on the product they intend to handle or the business venture they intend to run. For successful funding and returns from any business venture, there is need to conduct through research into the field and establishing the necessary information that would aid the entrepreneur avoids losses. The research provides the entrepreneur with opportunity to learn the market and understand the actual considerations and its needs. The research also helps identify the competition involved hence learning how to position the product better for better market management. Understanding the different needs of the venture including the staff needs will enable ease in accessing funding. Many funders need surety of the returns, which much depend on the level of skills in the team that the venture will consider. Developing a human resource plan that the management can rely on and build confidence in the processes will provide investors with the necessary force to push them into funding. The investors may also need to know the experience that the developers have in handling the venture activities. The level of experience that the developers may have works towards building confidence in the different parties interested in financing the project. The entrepreneurs will need to ensure they get into a field they have much experience in. different areas may require proper convincing for funding to prove possible especially if the funding is external. Funding of new ventures also depends on the level of risk involved in the venture. Ventures that carry much risk create fears in the developers and the different investors. The investors are more confident in situations that may carry less risk compared to those that carry much risk. As it is said, the higher the risk the higher the payment, many investors would want to get into businesses they have much confidence in the returns especially businesses that require huge capital provisions. Investing in heavily risky ventures will mean that chances are high the losses will be incurred and the investors will suffer them too and this explains why investors easily fund small ventures with less risk compared to massive ventures with much risk. The general market is also considered. This enables the investors and the venture developers understand the market, the competition involved, the level of risks, the returns to expect and the different ways to ensure they prove reachable. Understanding the market gives the entrepreneurs more confidence in their projects. Considering the above, it becomes possible for one to access funding for their business venture and it also allows them to confidently seek funding or invest their money into the ventures. There exist a number of ways that entrepreneurs can fund their projects. These determine the level of financing accessible to the business, the number of people that the business will consider owners, the initial, liability that the business starts operations with, the level of assets the business will start with and the success level of the business. For the business to succeed there is need to invest ample finances into it. The following methods of financing provide the ventures with finances to run their activities. Considering grants is one way to start a business. These will provide financing to the business that holds no much liability for the venture. The grants obtained from willing people will enable the venture reap more returns and hence developing the venture. The most difficult aspect is understanding and locating these grant providers. Normally many grants apply to projects considered to weigh on a more sensitive aspect considered to ventures for personal benefits. The governments normally provide grants to encourage certain ventures to establish in an area. The themes and demographics of the business may decide the availability of grants for the business. Grants for minority groups, women and mothers exist in many countries and provide a source of financing to new ventures. Considering contests as a source of financing is another way. These provide means not sure of providing the funding necessary for the business. It is therefore vital to consider these and ensure that the best contests are considered. Considering website fund, sourcing is also an option to funding an idea. Crowd funding has grown popular in the current world with many ventures obtaining funds through this. Considering sites such as Kickstarter, Indiegogo provide a good source of financing for a venture. The current technological advancement has generated the development of crowd funding and hence helped in creating an avenue for funding new ventures. The option of applying angel investors also connects to the internet. These financers look at the project and the viability it portrays that gives them the confidence they need to invest. Angel investors exist providing funding to a number of new ventures to startup and run their operations (Hendricks, 2013). They provide capital for the business and wait to reap from the returns that the venture registers. The investors majorly invest out of good will and the ownership of the company once successful. Through this, they become part of the ownership once the company grows hence diluting the profits that the company obtains. In simple terms, these investors seek to purchase equity into the venture through providing the idea developer with the funding to start the venture and once it grows, they share the profits. Once one is ok with sharing the equity of their ventures, a number of places exist that connect the angel investors with the idea developers. Through this, there is ease at accessing the financing necessary to start the venture. Another way that one can finance a new venture is through obtaining a loan or debt financing (Schermerhorn, 2010). Locating loan opportunities may prove difficult especially if the venture has just started up and is limited in assets and capital. Business ventures that have limited assets and capital bases find it difficult to obtain loans from the banks and other loaning institutions. Obtaining loans means one is ready to pay the interest that accumulates on the loan and these work to ensure that the risks and time value for money aspects remain provided for in case of any eventualities, the bank would remain secure. Considering other specialized options that include the loans offered for youths for development loans for women and farmers would provide a cheaper option for loans. Banks may offer loans but at a higher interest rate that will affect the new venture accompany them. These may prove ideal for business ventures that promise huge returns that will cover the interest and cover the actual cost of the whole venture. Considering banks will mean that the venture developer will also consider the level of assets, they are willing to tag as security in order to access financing for their business. These levels of financing hold huge liability to the business and the business owners on their property. For bank loans, one needs to consider the different details in their business plans that will range from the forecasted budgets, income statements, balance sheets and the cash flow statements. These will prove to the bank several items that range from the financial position of the business, the income levels to expect, the budget activities that will prove the priorities of the business venture and the different levels of return in net profit terms that the company will dedicate to paying the loan in an agreed period of time. Considering these aims at building confidence of the bank in the different ventures and ensuring that the ventures achieve their goals. The bank also seeks to understand the objectives of the venture and its target market. These all need including in the business plan that the venture developer puts into consideration when writing their business venture on paper. The bank will also need to understand the details of how the business venture will fit into the competition and serve their objective. They will need to understand ways in which the business will beat the competition to generate the revenues projected. It is therefore in creating a good business plan that one obtains funding for their projects. The application of microloans from small microfinance institutions will also provide funding to the project. The microloan facilities that cover up to $35000 aid the business venture to start up and run smoothly. These services are normally available to individuals that may not afford loans directly from the banks. These options work for people without or with limited finances to fund their won projects. Those that are in position to use personal financing may have a better yet cheaper way of financing the venture compared to the above. Personal financing may include consumption of one’s savings for the sake of building the business. The need to use personal financing in startups is more attached to startups due to the fears many investors have in losing money investing in startups. Considering funding from family and friends may also provide the necessary financing to start a business venture. These provide funds to the business and ensure that the business remains under the same owner solely with no aspects of sharing ownership considered. Family may provide their cash or assets for the venture to startup and consider it as support to the venture developer. Family members include all those people that believe in the idea and the efforts of the venture developer. Writing promissory notes for such ventures provides the venture developer with the necessary confidence to start their venture. These also referred to as bridge loans provide the venture developers with the necessary equity to run the business that may in future become shares for interested investors. Consideration of peer-to-peer lending mechanisms also provide for the business venture. These provide the business venture with money lending abilities through the connections of groups that raise money to support each other or a member in their different ventures with expected payment within a given period. Peer-to-peer funding provides cheap sources of funding for ventures and these make it easy for the venture to kick off and slowly pay the group back the funds within an agreed time. Another very popular means of financing a business is vendor financing. Vendor financing refers to the access of goods from the different manufacturers then selling them before making payment. The manufacturers only seek payments after the goods are fully sold. Vendor financing has supported many businesses today in this world of accrual businesses. The vendor financing normally covers a period that is more than the normal 30-day consideration terms that many vendors seek when supplying their goods (Zwilling, 2013). The business may also require funds for acquiring inventory, assets or paying their employees these may also be raised as above and provide for in the plan that the company has. They wait until the goods prove sold and that is when they seek payments. These are accessed based on one’s credit worthiness or the extra charges that the company imposes on the form of financing. Purchase order financing is a way many of these small business ventures starting up fund huge purchase orders. These provide the company with a purchase order document that the company may use to obtain funding from the people willing to fund the order including banks at a given percentage. Other forms of financing business ventures include the use of one’s retirement benefits, the consideration of the different, accounts receivables factoring and the use of personal credit lines to obtain financing for starting the venture. Other venture owners decide to finance their projects through the consideration of partnerships as a way of sharing ownership of the venture in return for some funds for financing the business. These will agree on the profit sharing means and the different responsibilities of each. Considering these, financing new ventures is not an easy task and requires a keen consideration of the different needs that the business ahs as a way of ensuring that the company or venture obtains sufficient funds to commence. Obtaining enough funds will mean the chances of success of the venture remain high and these will make the venture attractive to other investors that may decide to consider investing in the idea. References Hendricks, D. (2013). Four Great Tips for Finding Funding for Your Startup. Forbes. Retrieved from http://www.forbes.com/sites/drewhendricks/2013/10/31/4-great-tips-for-finding-funding-for-your-startup/2/ Muljadi, P. (n.d). Entrepreneurship. Paul Muljadi Publishers. Ruhnka, J. C. & Young, J. E. (1987). “A Venture Capital Model of the Development Process for New Ventures”. IN: Journal of Business Venturing. Volume: 2 Issue: 2 (Spring 1987), pp.167-184. Schermerhorn, R. J. (2010). Management. John Wiley & Sons. Zwilling, M. (2013). 10 More Creative Ways to Finance Your Startup. Forbes Magazine. Retrieved from http://www.forbes.com/sites/martinzwilling/2013/03/06/10-more-creative-ways-to-finance-your-startup/ Read More