Once the financial report is ready and we have calculated the ROI, comes the point where we look at our financial resources or the places from where we are going to get our finances. First option is owner’s equity i.e. investing entire money by the founder or the promoter. Either we invest our surplus money or from our saving. The choice of the entrepreneur will change his psychology. In case of surplus money we are confident. We can wait for ROI and mentally we will be less stressed. On the flip side if the business does not do well we may not put in all our effort to recoup the profits because the money we invested was surplus and the loss will not pinch that much. In case of limited savings investment, the impact is more on personal life. It creates insecurity in the family. So either we will compromise on our personal life or our business.
Second option is debt and owner’s equity that is part loan and rest is personal money. This is a very common model followed by the entrepreneurs. It is popular because of two reasons, first more capital can be raised through this model and secondly, we can finance a bigger project. Unlike the first option this option has the better of both worlds of the first option. Initially, it gives us confidence of putting in our own money and also the pressure to keep us going to pay back the loan. However the complete financial risk stays with the entrepreneur.
Third option is a mix of debt, owner’s equity and venture capital. This model is followed by seasoned and experienced business people. The main advantage of this model is that the liability and financial risk is shared among the investors. Also when there is more than one person investing in a business everyone puts in their efforts to make the business successful. Hence, in this model the financial risk is divided and efforts to make a successful business increases. For this model there has to be clear vision and complete know-how regarding the business to get people to invest in the business. So here the investment of the entrepreneur is low but the stake is high as entrepreneur is the person who is the key to the business.
Finding and dealing with the Investors
When planning to get investment for the business we must understand the psychology of the investor. Any person or agency while considering our business as an investment option will consider the viability of the project but will be equally concerned about our financial credibility and our ability to handle the project. Every person will invest in a venture which they consider safe and also believe in the capability of the entrepreneur. So while submitting project report to the bank or sharing business idea with an investor, it must be kept in mind that our financial standing and business acumen is portrayed strongly. When a company is regular in its previous repayments, everyone will be willing to extend financial support in times of need. If we maintain good financial status in the market and the financial institutions, it will go a long way in getting finance any time we need it.