Entrepreneurship unit 6
Capital - money / other thing for starting company or investing.
Asset - anything used to produce the product to be sold ( machine , plant etc )
owned by person
Inventory - material for sale
Equity - equity refers to the ownership stake a person has in a company.
Debt - a sum of money that is owed or due.
Business financing
6.1 INTRODUCTION
Organizations seek funding for various reasons, such as buying new
equipment, constructing buildings, or developing new products. Product
development is usually funded internally, while machinery and buildings may
need external funding. Due to limited cash flow today, many businesses also
rely on short-term loans or working capital.
6.2 Financial Requirements
Every business needs money for various purposes. It's important to match
each need with the right type of funding to ensure adequacy and effectiveness.
1) Permanent Capital
Permanent capital in small firms usually comes from equity investment (like
in a limited company shares or personal loans). It funds start-up costs,
major growth,expansions in its life - cycle or new product development.
Private investors may also provide equity to help a firm grow or exit. Unlike
loans, equity doesn't require regular interest and capital repayments —
investors earn returns through dividends or selling shares for a profit. Since
equity gives ownership, investors share the risk and only get returns when
the business makes a surplus.
provides a stake in the ownership of the business.
2) Working Capital
Working capital is short-term finance used to cover day-to-day expenses.
Small businesses often need it to manage the gap between paying suppliers
and receiving customer payments. Needs vary by business type—those selling
Entrepreneurship unit 6 1
, to other businesses may offer credit and have to finance growing customer
debts. Retailers or restaurants, which get paid in cash, usually have better cash
flow, sometimes enough to fund start-up costs. Still, they may need working
capital during slow seasons or for upfront expenses like rent. It can also fund
short-term assets, like vehicles replaced every few years.
3) Asset Finance
Asset finance is medium to long-term funding, usually lasting 3 to 10 years or
more, depending on the asset's life. It’s used to buy physical assets like
machinery, equipment, vehicles, or buildings, often through loans from different
lenders.
6.3 Sources of Financing
As a business grows, its financial needs change. Getting the right amount of
funding at the right time is often hard for new businesses, which are seen as
risky than established Enterprises. Financing isn't just about getting money—
it's also about managing assets wisely. Poor asset management can lead to
serious problems, especially with liabilities.
Cash is the key asset, and generating it usually requires making sales, which in
turn need inventory, facilities, and staff. Startups must figure out what assets
are needed to support sales and find the most cost-effective way to access
them—buying, leasing, renting, or subcontracting Manufactured products.
The main goal of financing is to ensure steady cash flow and plan ahead for
business changes. Funding comes from two main sources: equity and debt,
and there are many ways to access both. The types of finance can be broadly
categorized as follows:
6.3.1 Internal Sources (Equity Capital)
Owner’s equity is the personal investment made by the business owner(s). It’s
called risk capital because owners risk losing their money if the business fails,
but they also benefit if it succeeds.
Sources of Equity Capital:
1. Personal Savings – Entrepreneurs should first invest their own money and
ideally cover at least half of the start-up costs.
2. Friends and Relatives – After using personal savings, they can ask trusted
friends or family to invest.
3. Partners – Taking on a partner can help raise more capital.
Entrepreneurship unit 6 2
Capital - money / other thing for starting company or investing.
Asset - anything used to produce the product to be sold ( machine , plant etc )
owned by person
Inventory - material for sale
Equity - equity refers to the ownership stake a person has in a company.
Debt - a sum of money that is owed or due.
Business financing
6.1 INTRODUCTION
Organizations seek funding for various reasons, such as buying new
equipment, constructing buildings, or developing new products. Product
development is usually funded internally, while machinery and buildings may
need external funding. Due to limited cash flow today, many businesses also
rely on short-term loans or working capital.
6.2 Financial Requirements
Every business needs money for various purposes. It's important to match
each need with the right type of funding to ensure adequacy and effectiveness.
1) Permanent Capital
Permanent capital in small firms usually comes from equity investment (like
in a limited company shares or personal loans). It funds start-up costs,
major growth,expansions in its life - cycle or new product development.
Private investors may also provide equity to help a firm grow or exit. Unlike
loans, equity doesn't require regular interest and capital repayments —
investors earn returns through dividends or selling shares for a profit. Since
equity gives ownership, investors share the risk and only get returns when
the business makes a surplus.
provides a stake in the ownership of the business.
2) Working Capital
Working capital is short-term finance used to cover day-to-day expenses.
Small businesses often need it to manage the gap between paying suppliers
and receiving customer payments. Needs vary by business type—those selling
Entrepreneurship unit 6 1
, to other businesses may offer credit and have to finance growing customer
debts. Retailers or restaurants, which get paid in cash, usually have better cash
flow, sometimes enough to fund start-up costs. Still, they may need working
capital during slow seasons or for upfront expenses like rent. It can also fund
short-term assets, like vehicles replaced every few years.
3) Asset Finance
Asset finance is medium to long-term funding, usually lasting 3 to 10 years or
more, depending on the asset's life. It’s used to buy physical assets like
machinery, equipment, vehicles, or buildings, often through loans from different
lenders.
6.3 Sources of Financing
As a business grows, its financial needs change. Getting the right amount of
funding at the right time is often hard for new businesses, which are seen as
risky than established Enterprises. Financing isn't just about getting money—
it's also about managing assets wisely. Poor asset management can lead to
serious problems, especially with liabilities.
Cash is the key asset, and generating it usually requires making sales, which in
turn need inventory, facilities, and staff. Startups must figure out what assets
are needed to support sales and find the most cost-effective way to access
them—buying, leasing, renting, or subcontracting Manufactured products.
The main goal of financing is to ensure steady cash flow and plan ahead for
business changes. Funding comes from two main sources: equity and debt,
and there are many ways to access both. The types of finance can be broadly
categorized as follows:
6.3.1 Internal Sources (Equity Capital)
Owner’s equity is the personal investment made by the business owner(s). It’s
called risk capital because owners risk losing their money if the business fails,
but they also benefit if it succeeds.
Sources of Equity Capital:
1. Personal Savings – Entrepreneurs should first invest their own money and
ideally cover at least half of the start-up costs.
2. Friends and Relatives – After using personal savings, they can ask trusted
friends or family to invest.
3. Partners – Taking on a partner can help raise more capital.
Entrepreneurship unit 6 2
