Sources of finance for SME’sThere are a number of potential sources of finance to meet the needs of small and growing businesses: - Existing shareholders and directors funds ("owner financing")
- Overdraft financing
- Trade credit
- Equity finance
- Business angel financing
- Venture capital
- Factoring and invoice discounting
- Hire purchase and
- Merchant banks (medium to longer term loans
A key consideration in choosing the source of new business finance is to strike a balance between equity and debt to ensure the funding structure suits the business. The main differences between borrowed money (debt) and equity are that bankers request interest payments and capital repayments, and the borrowed money is usually secured on business assets or the personal assets of shareholders and/or directors. A bank also has the power to place a business into administration or bankruptcy if it defaults on debt interest or repayments or its prospects decline. In contrast, equity investors take the risk of failure like other shareholders, whilst they will benefit through participation in increasing levels of profits and on the eventual sale of their stake. However, in most circumstances venture capitalists will also require more complex investments (such as preference shares or loan stock) in additional to their equity stake. The overall objective in raising finance for a company is to avoid exposing the business to excessive high borrowings, but without unnecessarily diluting the share capital. This will ensure that the financial risk of the company is kept at an optimal level. How To Finance Your Project
SME finance A Key to SME Growth Business finance -UK Best Small Business Loan -UK Funding your Business -UK Financing your business 3i.com AIB. Venture Capital Association (EVCA) The European Private Equity and Venture Capital Association (EVCA) was established in 1983 and is based in Brussels. EVCA represents the European private equity sector and promotes the asset class both within Europe and throughout the world.
With over 925 members in Europe, EVCA's role includes representing the interests of the industry to regulators and standard setters; developing professional standards; providing industry research; professional development and forums, facilitating interaction between its members and key industry participants including institutional investors, entrepreneurs, policymakers and academics. Activity-Based CostingA powerful tool for measuring performance, Activity-Based Costing (ABC) is used to identify, describe, assign costs to, and report on agency operations. A more accurate cost management system than traditional cost accounting, ABC identifies opportunities to improve business process effectiveness and efficiency by determining the "true" cost of a product or service. ABC principles are used: (1) to focus management attention on the total cost to produce a product or service, and (2) as the basis for full cost recovery. Support services are particularly suitable for activity-based resourcing because they produce identifiable and measurable units of output. Importantance of Activity-Based Costing You can't compete-or even begin to compare-until you know how to cost. ABC is a cost accounting methodology that can define processes, identify the cost drivers of those processes, determine the unit costs of products and services, and create reports on agency components that can be used to generate activity- or performance-based budgets. A major advantage of using ABC is that it avoids or minimizes distortions in product costing that result from arbitrary allocations of indirect costs. Unlike more traditional line item budgets which can't be tied to specific outputs, ABC generates useful information on how money is spent, if a department is cost-effective, and how to benchmark (compare oneself against others) for quality improvement. The Unit Cost FormulaActivity-Based Costing uses cost drivers to assign the costs of resources to activities and unit cost as a way of measuring an output. Unit cost is the "average total cost" of producing one unit of output. It is calculated by dividing the total cost of production by the total number of units of output produced. For example, if an automobile manufacturer produces 50 vehicles for a total cost of $1,250,000, then the cost-per-unit (vehicle) is $25,000.
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