A good idea is something very important to start a business but more importantly is the proper implementation of idea. In both cases however, you cannot do anything without capital.
In business, it is not just about to find funding and to find better financing. Your ideas could be brilliant and your company may look very promising, but poor capital structure can destroy it, told “Forbes” President InterFinance Corp Dilep Rao.
When new trade began to develop rapidly, the investor, who was majority shareholder, take control and threw the young entrepreneur from business. He gave it to trial and received compensation of 100,000 dollars (after considerable legal expenses). After several years the majority shareholder sold the company for less than $ 100 million.
Such cases are many – more than you think. This advice is important – always keep control of the company. Also note that the majority shareholders, whether they have a controlling interest or not, may require replacement of Chief Executive – Director.
Another example, which gives Rao, is a company of the health sector. She secured capital from a bank of nearly 400,000 dollars and plans to buy computer on leasing. Only after one year proved that the company has urgent need of money. The reason – it used 70,000 dollars of initial capital of U.S. $ 400,000 to buy computers because Dell refused to lease. Asked by Rao that the refusal to have sought another Dell computer company, the answer was negative.
It was a mistake of the manager – mistake was that he did not seek another opportunity and finally this mistake resulted in closure of businesses.
The lesson: initial capital is very valuable, do not use it for secondary purposes, at least until the company starts to generate stable profits.
Rao gives a positive example in the late 90s, recycling company receives patent for recycling technology. The company needed, 1.5 million dollars for equipment, a $ 700,000 property and a substantial amount of capital.
How the company solves the problem? Equipment: equipment needed was very specific, and the young company has many chances to get a big loan. This board of directors decided to sell shares. In the 90s, however, recycling companies were not very fashionable (the time of the “dot com boom”). So they bet on “angel funding” – the sources were mainly from the board of directors and their families.
As for the property at the beginning the company hires its premises at market prices, but later due to the advice of financial experts, benefit from the subsidy, which earlier management was not thought to apply.
Capital to finance the company were a combination of securities and loans guaranteed by the U.S. Small Business Administration. However, its founders had to lay down and their properties.
Additional capital for growth – after the enterprise began to grow, the company sold more securities and negotiated a loan from regional financial institutions.
Research funding – money that was provided by a state program to encourage development of new products.
Ultimately, the company combined ten different sources of capital to find enough finance at the right time and at a good price. The result is that today this company has a multimillion sales and a huge number of customers. In the next three years, investors expect it to sell it for a solid amount to a strategic buyer, or to be made public offering.
Financing a small businesses is not is so difficult, says “Forbs” but should seek proper scheme. You’ll be surprised how much you can save to a company, if managers bother to seek more favorable conditions.
In both cases the results are not as good as indicative of a more long-term investment of this kind.