Businesses applying for loans often overlook internal sources of financing.
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Owners – Proprietors, Partners, Shareholders
The four basic forms of business organizations are sole proprietorships, partnerships, corporations and co-operatives. Regardless of the structure under which the business will operate, it is the owners who traditionally provide the initial financing from their own resources. The funds may come from savings or from borrowing against personal assets, such as one's home or other real estate. The Financial Analysis outlines the importance of identifying the cash requirements of the business and the flow of funds as the business is established or expanded.
Each form of organization has legal and tax implications. The advice of a solicitor and/or an accountant should be sought in the creation of the most appropriate capital structure for your business venture.
Some businesses carry an excessive amount of inventory for resale. Carrying a lower level of inventory could free up cash for use elsewhere in the business.
Many businesses extend credit to their customers. The cash generated from credit sales will not be available to the business until the accounts receivables are collected. If the collection takes longer than planned, operating loans (or an additional injection of equity from the owners) may be required.
Many businesses purchase supplies and services on credit. Payment of these accounts when they are due rather than when they were incurred can retain more cash within the business for a longer period of time. This can reduce operating loan requirements.
Sale of Assets
One other internal source of funds is the sale of fixed assets that are no longer necessary in the operation or are unlikely to be required in future. This can include everything from office equipment and vehicles to real estate. Disposing of some assets may reduce or eliminate the need to borrow money.