According to the United States Small Business Administration, the number one reason that businesses fail is poor management. The second reason? Not enough financing or financing coming at the wrong time. When you start home based business, financing should be an important consideration. You will have to make sure you have enough capital to get your business moving, but you will also have to educate yourself to manage that capital well.
There are two types of financing available when you want to start home base business, equity and debt financing. Your business's debt-to-equity ratio is important to determining what type of financing you will need to start home based business. The debt-to-equity ratio is the dollars that you have borrowed compared to the dollars you have invested in your business. The more you have invested to start home based business, the more attractive you will be for financing. Plus, if you have a high ratio of equity to debt, you should probably seek out debt financing to start home based business. However, if you have a high proportion of debt to equity, you may want to increase your capital, or equity investment, to gain more funds. This will prevent you from becoming over leveraged.
Equity financing is often used in a limited way to start home based business. You can gain equity financing to start home based business from a number of investors like friends, family, employees, customers, or other colleagues in your industry. However, venture capitalists are usually the most common source of equity financing to start home based business. Venture capitalists are institutional risk takers. They can range from people with considerable wealth, government resources, or financial institutions, and they usually specialize in specific industries.
Venture capitalists may be portrayed as financial gurus looking to provide financing for people to start home based business, but most often they will choose to finance a company that is between three to five years old that have great potential growth. Also, you should know that venture capitalists look over thousands of potential people wanting to start home based business, but will, in the end, only invest in a few. Also, some venture capitalists take little role in business decisions, but others may want significant in influence in how you start home based business.
The other type of financing available to start home based business, debt financing, also has a number of sources. Most often these resources to start home based business are banks, savings and loans, commercial finance companies, and the United States Small Business Association. There are a number of state and local programs available to help you start home based business. Family members, friends, and more can also be sources of debt financing to start home based business, but financial institutions are still the most traditional ways to gain this type of financing. Financial institutions also have a tendency to offer short term versus long term financing when you are going to start home based business.