harvest small business finance

harvest small business finance

Exploring Small Business Finance: Strategies for Sustainable Growth and Success

1. Introduction to Small Business Finance

This book provides students with an understanding of the multifaceted problems faced by entrepreneurial businesses and about investment opportunities, both on an absolute basis and compared with those available in the public financial markets. Appendices to this chapter and the two that follow identify the knowledge, skills, experience, and framework of value judgments required by entrepreneurs to make strategic financial decisions that may have profound implications for the long-run future success of their enterprises. The intent of these lists is to assist practitioners in identifying areas in which Congressional lobbying may prove beneficial: training and education, professional guidance, low-cost access to relevant information, and the development of useful equity-finance markets for small business may be responses to perceived needs.

This book is intended to bridge the gap between entry-level courses in finance for business majors and the profusion of material on the financial management of small and large businesses created by researchers and management counsel. It provides the comprehensive approach required to investigate the financial implications of the many subsequent operational decisions made by entrepreneurs and managers in their search for success and growth. Because of the broad scope of its coverage, the book is well suited to the two-course sequence in financial management for MBA students that is found at many institutions. In addition to this, the entrepreneurial focus makes it possible to tailor the book to classrooms filled primarily with finance majors who may lack an overview of the issues associated with managing the financial aspects of small companies, including those of which they may serve after graduation.

2. Key Financial Concepts for Small Businesses

The accounting concept of a “unit” or an “accounting entity” is significant for small businesses. In other words, the proprietor is a separate entity from the company for accounting purposes. They are impacted by all of the individual actions and non-commercial sources of money from the proprietor (such as personal contracts or inheritances from family and friends). The business’s records and the proprietor’s information must be kept separate in addition to separating obligations and ensuring that proprietary assets are used only for company operations. With financial statements, telling the difference between the company and the business proprietor is particularly important.

A solid business requires a strong financial foundation. Financial concepts will assist you in generating, understanding, and analyzing data for informed decision-making and risk assessment. The goal of any company is to ensure that its inflows from business operations are enough to meet all of its outflows. Sales, stock, net income, and cash are the most critical aspects to watch. Cash, in particular, is the lifeblood of any company; it ensures that suppliers and workers are satisfied, as well as making acceptable returns on investment. Professional advisors, such as accountants and attorneys, can help the small business owner maintain a solid financial foundation; nonetheless, legally, it is the proprietor who must ensure that all regulations and statutes are followed.

3. Sources of Funding for Small Businesses

A company may be able to extend credit from vendors, but to be able to get the most out of your business-to-business transactions, small business owners may need to look at how they will also finance immediate needs for things such as accounts receivable, etc. Speaking of which, business-to-business transactions are both a major source of revenue and a major source of financing for many companies. The company sells the product and the service to the customer. If the customer promptly pays the invoice, the company has just gotten a “free” financing. This can be a helpful source of funds for a starting business and also will help you build your own credit. Small business vendors usually offer good credit terms to businesses with which they have a good relationship.

There are a number of ways to finance a small business. Small business finance traditionally consisted of borrowing from friends and family, commercial bank loans, trade credit, and credit cards. Especially for a small business, examining these options in more detail will answer questions such as: What is the best source of funds? Who is the best person to approach about a loan? How much should the small business finance, and what should the owner do to acquire money?

4. Financial Management and Planning for Small Businesses

The capital structure of the firm is strictly the primary interest of the financial manager. This involves deciding how much money should come from debt and how much from equity, subject to providing a stable business policy to manage the firm, in addition to providing a long-term financing concept. It is the maximization of shareholder’s wealth consistent with limiting the individual risk that will direct their resources into more productive individual risk. This should undoubtedly be resolved by a risk-return trade-off. It is the critical application of capital budgeting; the capital structure and firm expansion would only be effectively combined with the evaluation of risk emanating from the investment and the raising of funds required for additional investment in assets.

The challenge for a small business is to determine financial need, match the source of funds to the need, evaluate risks and interests, time profitability, and cost. For a successful business, it requires managing a business more effectively on a continuous basis. This process of an integrated planning and control system provides a foundation for developing and implementing strategies, budgets, operating procedures, and control of resources, which are generally held to be critical to small business success. The financial management of a small firm is more of a continuum than an isolated event. It must reflect not only the changing and growing characteristics of the business and economics within which it operates but also the strategic decisions of owners, managers, and external financiers.

5. Case Studies and Best Practices in Small Business Finance

Action 2: Begin the use of financial information before the firm is developed. With no history of operating results, a start-up firm may find it difficult to obtain formal debt and equity finance. Yet, finance records such as a break-even analysis, cash flow projections, and earnings forecasts provide important decision-making tools. Such tools determine the amounts and timing of funds that will be needed during the start-up phase. While generating comprehensive data can be expensive, it is important to generate both historical and prospective financial information early. This process will reinforce the business planning process and create valuable information needed for the next phase – obtaining funding.

Facilitating finance starts with using the information that you have about your firm to develop a fact-based strategy based on your firm’s strengths and weaknesses. Consequently, strong financial management begins with placing an adequate priority on comprehensive and timely financial information. The development of a business plan and the routine use of the plan as a guide and monitoring tool will help to ensure this fact-based strategic focus. Using business experience and business instinct is an important strength in small business management, but a proper use of available financial information is an important tool that allows you to focus on your instincts and to make informed decisions. Business plans are discussed in a separate chapter, but the need for and basic structure of financial reports must be a part of any successful business plan.

While relative size and market share can change certain aspects of financial management, the key practices that are discussed here are important for all small businesses. Importantly, a comprehensive examination of successful firms supports an emphasis on universal practices and principles. Based on the initial study of leading growth businesses. Despite the importance of strong accounting and finance functions, it was observed that in many cases the need was often addressed after a period of rapid growth and change created difficulties. The need to have good control of finances during growth was recognized, but was often underemphasized during the start-up phase. Thus, attention to strong financial management has to be a component of the entrepreneurial strategic focus.