It is the desire of most people to run their own businesses has their main source of income. There are no fixed criteria of establishing a business, but it is evident that before starting a business, one should do proper planning, and most importantly should be in a position to acquire appropriate sources of finance. Furthermore, it is necessary to research the legal position on the business to be established (Reuvid, 2011). To the end, the focus of the paper will be a discussion of how to start a business venture, with particular interest on the steps to be followed, sources of finances, and the anticipated changes and how they will affect the sources of finances.
Steps to follow in establishing a business
The first step in starting a business venture is drafting a business plan. This step is regarded as the most important step in establishing a business because it is a guide to a firm’s success. The business plan provides various means in which the company intends to obtain revenue (Barrow, 2011). In some cases, enrolling in training and seeking business assistance then follows. Training can be done through online training for one to acquire various business management skills. Chatting with owners of the existing businesses may also be important, in that one will be able to acquire useful information. Thirdly, is finding a strategic location for the business. Finding a location should be done after a brief market research along with planning. For a person to correctly establish the location he or she should determine his or her needs; this may include competition, safety, among others (Barrow, 2011). Evaluation of finances is also important because one can determine the tax rates, along with government incentives to a particular location if any. And lastly is that one should assess the friendliness of the chosen environment, that is, if there are threas or rather if the condition is favorable to work.
The fourth step entails finding the required funds to finance the business. In this case, one should be able to determine the various sources of funding that are available and accessible. Some of the available sources of funds include microloan program, which aim at providing small loans to business. Such loans are usually short term in nature and are always directed to small businesses. The next step is looking into the legal requirements. One should determine the form of business possession he or she is interested in. The business ownership may be in terms of sole proprietorship, partnership, limited liability Company, among others (Strauss, 2011). After choosing one of the various forms of business possession, one can easily decide the amount of business taxes expected to be paid because taxes are not uniformly charged. Apart from this, the taxes that are charged by the state should also be put into consideration.
Besides, naming the business is necessary. In this case, one may use his or her name in such a process. If one decides to use a fictitious name, then he or she must register with relevant bodies such as the county offices, along with the state government. Tax identification for the business should then be obtained, and this could be obtained in various ways including online application. Before applying for such identification, one should first of all ask if the number is essential depending on his business venture. On the same note, registration for various types of taxes should be considered. For instance, the state may charge income taxes depending on the form of business ownership (Reuvid, 2011). In the case of a company whose liability is limited, the firm will be taxed independently from the owner; whereas sole proprietorship will be dealt with in that both the owner along with the business will be taxed. If the business has some employees, then it means that it will have to incur employment tax. This taxed amount in relation to employment tax may be used in employee compensation and also in cases of workers insurance
The other important factor is the acquisition of legal requirements to include permits along with licenses for the business. This is important since it will indicate the type of business that a company engages itself in. Without the possession of required permits and licenses; it will mean that the business illegally engages in it activities (Reuvid, 2011). There are two types of both permits as well as licenses, these are; federal permits along with licenses and state permits and licenses. Lastly, it is important for the business owner to understand employer’s duty, which is applicable if the owner seeks to employ other people. Such duties may relate to decision making, and also assigning duties to employees. Possesion of the stated capabilities by the employer will enable him run his company effectively.
Funding Sources
Arguably, various types of business funding are available, depending on the kind of business to be established. However, the most common sources include equity, family contributions, credit card, and supplier credit. Equity, also termed as debt or the owner’s savings, entails the use of personal savings to start a business. Alternatively, the owner may decide to work with very little or no pay in the company instead of hiring another employee (Strauss, 2011). This form of funding is advantageous in various ways, but most importantly the owner will have full control of the business, since he is responsible for performing all the activities. Besides, one will also be closely linked to the venture, in that he or she will be able to know areas of strength and weaknesses. Thirdly, the owner is also able to enjoy the profits alone. Nevertheless, equity is likely to be insufficient to support the entire business (Reuvid, 2011). In this case, the owner’s savings may not be sufficiently enough to run a business, which forces an individual to opt for other funding sources.
The second funding source is contribution from family along with friends. In this case, an individual may request his or her family to invest in the business. Close friends may also be asked to be part of the business. One of the advantages of this source of funding is that both friends and family can trust the business owner as opposed to outside financiers. Besides, it can also provide stability in the business because one may decide to concentrate on the business, with the help of those close to him or her. However, this funding source has drawbacks including the possibility of affecting relationships especially when things do not go as expected (Barrow, 2011).
The third funding source is supplier credit. This is where goods and services are given to the business, then payments made at a later date. Most upcoming businesses use this strategy to acquire the starting inventory, especially if they could be trusted by the supplier. With this kind of funding, the owner can make profits out of the inventory supplied because he will receive the selling price that is equivalent to the cost price; which is the amount that he or she is supposed to pay the supplier together with the profits (Strauss, 2011). Nevertheless, very few suppliers advance credit, especially to new businesses. Therefore, this is not a reliable source of financing a business. Furthermore, in case of delayed payments, the suppliers may impose some interest.
Lastly, one can make use of his or her credit card. The owner may decide to use his own credit card to make purchases for the company, and later pay back together with interests. Some credit cards are designed in a manner that they do not attract interest, especially if one pays before the stipulated time limit. Credit card financing is easy to use since one does not need any special knowledge in its application. It is also a good means of monitoring records of the firm’s purchases (Reuvid, 2011). However, some cards may attract high interest rates since they do not apply uniform interests. Besides, one may be tempted to include personal spending in their business expenditure.
The best funding source
Taking into consideration the above discussed pros and cons of each funding sources, the owner’s equity is the best funding source. With owner’s equity, one can run a business using his or her own means, which makes it a reliable source. Apart from that, all the profits that the business make will be enjoyed by the owner himself as opposed to when the funding was from friends, in that the owner will have to share such proceeds to them (Reuvid, 2011).
Intellectual property to be protected
There are different forms of intellectual property that can be adopted by a business. These are patents, trademarks, and copyrights among others. To protect the intellectual property, various strategies can be put in place, including registration of the intellectual property. When patenting an intellectual property, a patent attorney and intellectual property lawyer may facilitate the process. Besides, secrecy on the intellectual property should then be applied, with a strong demonstration of ownership. This can be done by contacting only the relevant people, and acquiring of a non-disclosure agreement, before revealing the right to anyone (Barrow, 2011). All these will enhance confidentiality. The owner should also describe in details what the intellectual property is all about. With this, one will have demonstrated ownership of the intellectual property.
Alteration of funding source
For a company to ensure its products and services are completely virtual and can meet the social needs of its clients, there is the need to alter it preferred source of funding, which in this case is owner’s equity (Reuvid, 2011). This is a venture whose outcome is not certain hence one need to opt for contributions from friends. Such contributions should be in a manner that those friends should not expect to be given part of the profits.
Hypothetical change of funding sources
Business funding is usually subject to change especially when there is some growth. For a small business, one doesn’t need to have a lot of money because the business needs will be minimal. Therefore, the sources of funding will significantly change, in that the owner may opt for bigger sources of funding such as; loans from commercial institutions and also through venture capital.
References
Barrow, C. (2011). Starting a business from home. London: Kogan Page.
Barrow, C. (2011). Starting a business for dummies. Chichester: Wiley.
Reuvid, J. (2011). Start up and run your own business: [the essential guide to planning, funding and growing your new enterprise]. London: Kogan Page.
Strauss, S. D. (2011). Get your business funded: Creative methods for getting the money you need. Hoboken, NJ: Wiley.
