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The Businessman's Encyclopedia

Financing a Business Proposition

Money is the lifeblood of any business. An undersupply means under-development of the business; thinned down below a certain point, it means death. Whatever be the business, the first great factor to be reckoned with is financing the proposition; has it, or can it get money upon which to run? The majority of businesses are underfinanced - not because they do not pay or because they afford a safe investment - but because the proprietor has not the time and sometimes has not the facility for financing his proposition. There never was a time when financial backing was secured as easily as now. There never was such a vast amount of money available for legitimate financial purposes, as there is at the present time. How best to get it? is the question that every man in business is asking himself. There are four ways - each having their various advantages - of getting money to finance a business. Each will be taken up in order. The Cash Basis Plan. The first method of financing a business proposition is simplicity itself. It is that of financing it on a cash basis with your own funds or funds permanently in your trust. The percentage of business men who can do this is small indeed, perhaps less than one-tenth of one percent. But it is a method which many men have tried at least once in their business lite. Many men are trying it today, only to adopt other methods later. When a man starts in business with the intention of financing himself either one of two condition exist. He either has sufficient funds to meet all contingencies or he has not. That is plain. The business man with sufficient funds who is financing himself has his problem as well as the man who is "wild-cutting." True, these problems are not disconcerting, but they are to be reckoned with. What to Do with Idle Funds. First is the dead capital problem. Any business calls for more money at certain times than at others. A business on a cash basis, then, is bound to have funds lying idle at certain seasons of the year. Being variable in amount and subject to sudden calls, the investment of these funds so as to obtain other than a very small amount of interest is difficult - often impracticable. Some few banks allow a small rate on balances; more do not. Few non-speculative investments are available. So there is the problem of carrying a variable amount of dead capital. Usually it is best met by some arrangement with a bank or trust company to take care of the fund - even though the interest rate be small. Credit Methods Have the Sanction of Use. The next problem for the business which is financed from the inside is that it is shut out from participating in the many credit benefits which come to borrowers. The present system of credit has grown up because conditions demanded it and because it presents an array of advantages not to be lightly disregarded. The cash business is "out of tune" with the credit system and the businesses employing it But the advantages are many and - naturally - outweigh the disadvantages. The man who can buy for cash can pick his market. He is under no obligations to anyone. He can buy where and when he pleases. Picking a jobber or supplier who has to have money, he can get quotations at prices far below the credit buyer. In fact many businesses are built up on this principle. They go into the market with cash—avowedly looking for "snaps." They then throw these pick-ups on the market at prices which win favor and make a quick turn. This is the theory of the cash buyer. Extracted from "The Businessman's Encyclopedia". Download the complete ebook from SuccessEsource.com for $5 (PDF format).

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