Financing A New Venture On Entrepreneurs Point Of View Finance Essay

support A New Venture On Entrepreneurs Point Of overhear Finance EssayIntroductionStarting a stemma is the dream of m any wad and the furbish up option to separates. There atomic number 18 roughly reasons wherefore a person would be go outing to bulge-up their possess club but independently of the reason, many of the bare-ass enterprisers situate stuck right in one of the first gear and in truth important steps when it comes to start its proceed monetary bloodlines to do the jumpstart, also know for the term seed funding. It is vital to any type of connection to dumbfound cash enough to start the handicraft and hold the specie flow positive for the starting months until the society is able to pay itself. many a(prenominal) entrepreneurs ar luckily enough to hold financial aids from personal nest egg or from the salutaryspring know 3Fs Family, Friends and Fools. Others need to lend silver from outer financial sources, such as banks and governing bo dy agencies. By lending specie from separates1, the entrepreneur is doing a commitment to pay the money back plus interests over the borrowed money. Other newer alternatives argon the concept of crease angels and supposition with child(p)ists whose invest in the start-up with the required amount of working slap-up but they expect a portion of the caller in return.Cite previous explore in the area. It needs a bit more textbook to introduce the reader to the concepts we are going to posture in the document.BackgroundFinancial institutions became an important mechanism of injecting money into all storeys of disdaines from start-ups to hyperboliseing companies. Many literatures have compose active available options in financial backing new wrinkle take chancess and around interesting conclusions have been released save due to the geographic focus of this reckon, there have non been found any akin(predicate) work in which could replace this take on.There are many available options widely used for entrepreneurs in true countries to get money for start-up their straines, but in the developing nations most people lack know fetchge about new venture pay, therefore limiting available sources. Hence, this thesis will examine the most everyday options available in brazil nut and Thailand and compare such options with the most used in the developed nations expecting to earmark more insights to the entrepreneurs in the battlegrounding countries that out there are different available options.DefinitionsLimitation of the removeDue to time constraints, it has been necessary to scope down the object of research to a narrowed picture. The probe is focused on the financing of new venture in newly start-up fruit lie business as it is in the field which match the writers personal interests. Additionally, there is a limitation in size that paper must accomplish. but, the writers have intention of focus their study in developing nations attempti ng to find the pitfalls that stay fresh such countries to begin. Therefore been Brazilian and Thai, it is their personal willing to base the thesis in their nationalities.This study capability non reflect the entire population of the countries due to the size of both nations. However, this thesis is an empirical study which tries to be as closest as possible of the reality.CountriesBrazilBrazil is a developing nation South America, been the 5th largest country in the World both in territory and in population. It is a land of great biodiversity where lies the Amazon rain-forest which accounts for 20% of the joints fresh water and oxygen generation.Brazil started to modernise as a major economic power in the world map after been put forward as part of the BRIC countries (Brazil, Russia, India and China) as the great powers of the globe by 2050. In footing of result, currently Brazil is the 7th largest economy2in the planet in which chief(prenominal) exporting areas are agr iculture, mining, oil, manufacturing and run.Recently, its middle and high classes overtook the number of poor setting the mark of 65% of the entire population3. The country is predicted to grow in fast pace, achieving in 2030 a quality of life of the population similar to the current in the major European countries.ThailandThailand is located in South East Asia, been the 50th largest country and 21st most thickly settled country in the world with approximately 65 million people4, and been the second largest economy in South East Asia after Indonesia. Thailands economy is mainly base on exports of rice, rubber, sugar cane and feed even though tourism plays big role. Because of its richness in natural resources5, Thailand have its own comely to tempt foreign investors, and once had been called as the coming fifth Asians tiger.Initial financial aidTo any new beau monde, assets are mandatory. Even the simplest company would need some sort of asset, been human or other resources . Assets would be acquired in many manners, but the most earthy and easy way is to buy, lease, rent or hire, thus, paying in capital. Additionally, money is requisite to keep cash flow positive and some innocent for savings in case of an emergency. Furthermore, money is also needful in set up to keep the company competitive in the industrial landscape. Therefore, for the great majority of companies, seed money is required in tack together to satisfy these needs.Focus on blue business start-ups trivial businesses are responsible for employing more people in developing nations than bigger wads (show some study here). Additionally most of the developing countries have pocketable businesses owned by nationals, hence leading to keep the money and profit of the company inwardly the author country. Moreover, most successful entrepreneurs has small businesses as a starting point, hence this study is rewarding in terms of possible usage by business owners aspirants in the refere nced nations.Concentration in product oriented businessesNowadays, businesses are mainly split between two major categories services and product oriented. serve account for the biggest chunk of the pie, however products oriented business are the spark plug to trigger understructure and lead to further development.The choice for studying product oriented business over services is led by the desire of the writers in bringing innovation and entrepreneurship to their home countries. Additionally, there are personal interests in pursuing such business field in the near future.Surveyed entrepreneurs visibilityAs part of the study, an on line of descent mint was conducted with product oriented manufacturing companies in Brazil and Thailand in which have survived from at least 5 years.A sample of 20 companies of each country spread onto different states were selected to take part of the survey, in order to make a more terse picture of the nation, not only focusing on busy regions.By sel ecting companies with at least 5 years in business, the authors ensures that the chosen entrepreneur has a successful business as it is known to be the baseline to consider the company successful.ObjectiveThis study has the main objective to elucidate the possible options of seed financing the entrepreneurs have, outlining the pros and cons of each given option and providing a raw material guideline on how to obtain such coronations.The outcome of this study should have enough information to the entrepreneur be able to select the most viable option of financing based on the character of the business, required amount of investment and for how long it is expected to have the bring fully paid.Goals Review this text and merge with the above to shrink everythingThe final results which writers expect from this thesis are to obtain the knowledge based on the financial entrepreneur which related to the program study. Additionally, this paper would provide the reader information and stati stical data regarding the available sources of financial institutions, pros and cons of each available sources, the trends of entrepreneur and their behaviours on financing new business venture in both Brazil and Thailand. Due to the analysis in this paper, writers are expected to tot up all data and provide the new possible method which could be match with people in both countries. The aim of this work is to show the various financing options to entrepreneurs whose want to form product oriented companies in Brazil and in Thailand and provide insights of the most financially viable options available in the canvass markets.Literature ReviewBrief about entrepreneur and job creationIt is widely known that the word entrepreneur comes from the French word emprendere which means to undertake in English. Joseph Schumpeter, an Austrian economist in heavyset has defined an entrepreneur as a person who creates wealth by combining various foreplay factors in an innovative manner to generat e value to the customer with the hope that this value will overstep the cost of the input factors. Additionally to that, it is understood nowadays that the entrepreneur is someone able to undertake challenges, preface and create an organization out of it.Entrepreneurs have the power of creating companies. By starting point, normally the ventures created start small and expand along the way. Micro and Small companies employ the major part of the labour force within a country in the majority of the countries. As an estimation of the potential of the Micro and Small businesses in terms of job creation, 52% of all incessantly employed people in Brazil in 2010 were employed by such companies size which accounts for approximately 13 million people, harmonize to an employment study done by a governmental agency6. World Bank shows the very same character of employment for Small and Medium sized enterprises in Thailand according to a study done in 19977.Figures can vary greatly on each n ation, but normally numbers favours Micro and Small organizations than Medium or the bigger ones, thus showing the great importance Small and Micro business have in any country, specially in developing nations such as the ones part of our study.Forms of business entitiesChoosing the correct form of business entity is an important decision when starting a business. Not all entities are suitable for raising substantial amount of capital or are flexible enough to put up growth within the expected aim. With a little forethought and the ability to understand the advantages and disadvantages of the different types of entities, the venture tycoon have the capability to achieve the expected goals.The most common business forms are touch on proprietorships, corporations, check liability companies and partnerships which are abbreviatedly explained below.Sole ProprietorshipFrom a literature written by Willam et al. (2000, page 5)8, a sole proprietorship is a business owned and controlled by a oneness person and paying the applicable taxes on his or her personal income tax return. A sole proprietor has unlimited personal liability for the debts and obligations of the business and cannot sell righteousness to fund operations or expand the business. As a sole proprietor, one can use debt to finance operations, but will be personally liable for the repayment.CorporationA corporation is a legal entity or person created to conduct business by acquiring assets, hiring employees, paying taxes and facing pertinent legal issues9, according to William et al, 2000, page 7. The corporation carries on business in its own name and shareholders, officers and directors, and the employees are not personally liable for its acts. A corporation has appropriate structure for long term life-time as the model allows a wide manikin of financing options, hence allowing existences continuity.PartnershipA partnership involves two or more people carrying on a business together and sharing t he profits and losses10William et al, 2000, page 6. Depending on the level of self-will and/or agreement, all partners are expected to have similar liabilities, obligations and responsibilities.All profits and losses are passed through to the partners according to their percentage of ownership, even if the profits remain in the business to fund go along operation or expansion. fix ups of a regular businessBusiness professors have different views in terms of which the degrees of a company are. It can be argued as several or some however, it is concisely known that they vary from 3 to 6 stages, depending on each scholar point of view.Markova Petkovska-Mircevska, 200911points us to 4 brief but yet well developed major stages in which a regular company may have in its life-time, which are explained below.Start-up stageThe business is in the conceptual phase, yet in the entrepreneurs headway a precious diamond to be lapidated.In this phase, the entrepreneur has as main challenge t o convert people. He or she needs to demonstrate his/her idea to potential investors and to potential human resources or employees that the company will succeed. Usually, at this stage, there is no company formed yet.Seed stageHere the venture starts to takes shape. Normally, production has not started at this point, however planning, sketches, prototypes and alliances are been created at this stage. Even though if the company has in reality started producing or selling, the product/service good-tempered needs to prove it is sellable and profitable, thus still debut to the market.In this stage, the entrepreneur needs to ensure the venture will not run out of money as key resources (personnel or assets) are required. Human resources can be high skilled workers or a marketing professional, which are known to be key factors to a success story.Normally, the company is up to 1 year old since its foundation.Early stageIn the early stage the firm is normally expanding, and producing and delivering products or services. It is often less than 5 years old and it may not yet be profitable.Expanding stageIn the later stage, also called the expansion stage, at this level of development the firm is rise and profitable, and often still expanding. With a continued high-growth rate, it may go public within 6 months to a year.Types of firmsAvailable start-up funding depends on its long term potential. There are trio types of start-up firms12 lifestyle, middle-market, and high-growth potential firms according to Markova Petkovska-Mircevska, 2009.Lifestyle firms provide only a living for their founders and accounts for approximately 90% of all start-ups. Due to their limited nature, they are unlikely to attract external financial funding, thus tending to be funded by the entrepreneur.Middle-market companies ranges on 8-9% of all start-ups. This type of firm start to attract external funding as the average growth rate is 20% annually.High-potential organizations are 1% or le ss of all start-ups. They are very likely to grow over 50% annually and their sign five year revenue projections are very high. Usually such firms demand multiple rounds of external funding from angels and venture capitalists.Financing stages of a new ventureFinancing may be injected at different stages of a business, per its demand of redundant funds. As different businesses major power have dissimilarity in growth pattern, many literatures have the stage of financing differently set. According to Singh, 200013, the classification of stages of financing are as followEarly Stage Financing later Stage FinancingSeed CapitalStart-upsSecond-round financeExpansion financeswitch capitalTurn-aroundsEarly stage financingDue to its high risk of failure (related to uncertainty of business), many private investors invest in this phase expecting high returns in the business profit. In addition, as the company is still conceptual, smaller amount of investment is needed which attracts investor s.Seed Capital StageSeed capital stage happens when the business start from the conceptual idea. Lucas Peraquito, 200914give the description of seed capital funding as early stage where concept or product is under development and the business is not operational. In this seeding stage, there is great chance of failure. I.e. the product fails to materialize into workable model or the market is not ripe for the product15as pointed out by Singh, 2000. Due to high risk and uncertainty on this stage, investors are very scarce and normally it is financed by the entrepreneur. However one of the main objectives of this study is to judge it.Start-upsAfter the idea or products prototype is proved possible for commercialization and there are some indications of potential market for the product, a business plan is developed in this phase as unremarkably here the needs for investors becomes more prominent. Hence, capital investors will look for evidences of entrepreneurs track record and previ ous follow up in the first place join the venture.If there are funds enough, a prototype is developed and tested and feasible production line on initial samples lots is tested. By launching the first sample batch, initial sales can start. In addition, business owner and investors can take a market research on the first batch sales to predict more precisely the amount of investment needed for a full production. In this start-ups stage, risks are higher than seed capital stage because the investments are considerably higher.Second round phaseIn this stage, the product is in full production and available in the market. As the company is entering into the market and fighting for its market share, competition would start showing its face, forcing the company to strive for survival. Quite often, to survive in a competitive market, new business demands special(a) shooting of equity-alike funding to maintain or exceed its advantages over the competitors.Later Stage financingAccording t o Singh, 200016, Later finance is a term used for funding open businesses, which have passed through the hazards of early stage financings, hence, usually less risky. On the other hand, the amount of investment is typically higher due to the companys profile and products value.Expansion financeAfter the companys core product is strong in the market and continuously profitable, an established business might decide to expand by organic growth or by acquisition. entire growth means expansion of business into new product line or new markets. skill implies to expansion in the same business field but increase in volume of line production. (It does not seem to be right.Give me this reference) Hence, business plan with effective future development is important to attract venture capital funds in this expansion stage.Replacement CapitalSome venture capital companies invest into this replacement capital stage by purchasing existing shares from the entrepreneurs due to potential profit. The fund expects a reasonable income yield to those who sell shares to the fund. The funds are not directly financing the business but there is a possibility for future financing to assist companys expansion.Turn-aroundsA turn-around refers to a recovery situation17. The recovery situation can occur in both early stages and later stage of a business development. Turn-around which occurred in early stage financing usually happen due to absent of entrepreneur managerial skills or slow respond of market to the product. Later stage turn-around rarely occurs if experient venture capitalists or business angels are involved. Investors who are willing to invest in companies in turn-around situations have to weigh whether the business has future prospects of profitable growth and if it worth the effort.Needs for external fundsbusiness finance option.pdf - Check it to rephrase and quote the text belowThere are countless reasons wherefore small businesses seek finance. It is also known that extra money can boost companys ability to address more confidently, improve processes, quality, reach new markets, etc. Independently from the reason extra cash is necessary, three main phases of business needs more extra finance which areNew businesses that are existence formed these can be each started up from the ground or acquired by another firm. vivacious businesses that have a trading history and simply require additional finance for expansion and growth.Companies with financial difficulties to keep in business. This can happen to any type or size of venture and the reasons why it happen is not in the scope of this study.A business can grow by either using home(a) or external sources of finance. sexual sources of finance overwhelm all net cash flows generated by the business, such as retained profit or sale of assets. outside sources of finance include bank loans, sale of a part of the business to investors (e.g., venture capital firms, business angels), and leasing ( long-term renting of equipment). outside(a) sources of finance have a number of big advantages over the internal financing options, however drawbacks do exist also.Starting up the businessWhen the entrepreneur decides to start-up its venture, there will always be a time when he or she will go through the financial aspects of opening a new company. Lack of financial resources is kind of often the main reason why great companies are stargaze but never leaves the papers in developing countries.With no money, the entrepreneur is normally unable to go much further than its initial plans as it is very difficult to gain resources18(not impossible though) with no cash at all.ExpansionA business needs investments to grow. Even the most profitable companies cannot rely all on reinvested profits to finance their expansion. Accordingly, a business needs to secure bank credit, partner with venture capital firms or in any other way to secure external sources of finance. External finance provi des the room for faster growth, allowing the company to operate on a far bigger scale, capturing new markets and providing products and services to an ever greater number of customers.Greater Economies of ScaleLarge businesses are generally more efficacious than small ones. They have a greater bargaining power with suppliers and they can spread their fixed costs, such as administrative expenses, over larger sales. This results in lower costs per unit of production, which, in turn, gives the company a competitive edge in the marketplace. External sources of finance help a company grow faster, achieving the economies of scale necessary to compete with the rival firms on regional, national, or even international levels.Financial crisis recoveryAny company at any stage is susceptible to get into financial trouble. The reasons why it might happen is infinite. It can be an outer issue happening in the government level, market level or even globally level. It can be due to an internal fla w committed by the higher management or a key employee that decides to leave the company. It could even be due to a machine that breaks down and turns to major issue, leading the enterprise to trigger a financial crisis.Thus, when such things happen, extra money (if not saved) is required to bring the organization back to its rails making it profitable again.Financing options trendsMost common financing optionsDebt or equityWhen entrepreneurs consider to start or to expand their business, quite often external funds are pursued. It might come from individuals or companies that can provide a loan or direct investment to the venture, always looking for a future compensation. Investors or other financial sources can get return by two distinct ways, by debt or equity.Debt financingDebt financing usually occurs when you make a loan from a lender has been written by Duncan M. Chembezi (page 1). The loan will be used as capital injection in the business and need to be repaid over a period o f time. The loan from each financial sources would have different terms and tally in clear repayment schedules and a set interest rate.AdvantagesThe primary advantage of debt financing is that the entrepreneurs still retain total ownership of their businesses19. The benefit from having full ownership is that the entrepreneur can make strategic decisions, keep profit and reinvest it in the business. Other major advantages is that debt obligation will limit only in the repayment period which differently from equity finance where a percentage of ownership will not end until the investor sell its shares on the businesses.DisadvantagesThe major disadvantage of debt financing is the requirements which the entrepreneur needs to address before filing to a loan plus the interest rates to be paid on regular instalments to the lender. Hence, small business which has low cash flow might face difficult to re-pay the debts regularly. Most lenders might charge penalties for late payments which in clude charging fees, taking possession of collateral, or calling the loan due early.Moreover loans are usually available only for established companies. Start-up business might find it difficult to get a loan granted due to their business high risk and low (or no) company profile. lawfulness financingEquity capital implies to money that you and any of your business associate(s) inject directly into the operation20 Chembezi. Contributors of equity capital would receive shares in the business as a compensation for the investment made.AdvantagesEquity financing provides extra capital into the business without the requirement of repayments and payment of interests as compensation. Hence, the equity is added into companys net value, improving the financial stability of business and its ability to obtain debt financing if still required.It can also result in outside expertise being added to the enterprises management or board.DisadvantagesEquity financing is a permanent investment which reduces entrepreneurs ownership, thus its ability to control the business.Additionally, profits of the business are shared among the shareholders or equity investors.Internal and external sources of fundingFunds can be acquired from a variety of sources however all of them will always be from two different types of sources internal and external funding.Internal funding are funds available within the organization such as personal savings, retained profits, bootstrapping and Family Friends and Fools (3Fs).External funding is money that comes from a source which is outside the company. External sources of funding can be countless, however the most common are bank loans, Angel investors, Venture Capitalists, Government Agencies and general partnership.Internal fundingAdvantagesPossibly internal funding would be the best option to any entrepreneur. Keeping your finances internally and controlling it yourself or within the organization means that one will keep ownership of your business w ithout external thrown-away(prenominal) interference. Moreover, by keeping the financing internally, the entrepreneur has the opportunity to grow sustainably and consistently.DisadvantagesAlthough the many advantages of using internal funding, some drawbacks do exists.By using internal money for start and grow the company, it is inevitable that more money will be needed to keep the organization financial healthy. Such money is always needed to keep a balanced cash-flow and allow growth therefore, using internal money either from the entrepreneurs savings or from the companys profits might constraint growth or imbalance the financial stability of the venture.External fundingAdvantagesBy taking external money the entrepreneur is possibly bringing more expertise to the company as if money is secured from business angels, venture capitalists or general partnership people with similar interest in having the company succeeding will try to help the entrepreneur, been many of them very wel l known in the market the entrepreneur is pursuing the venture. Moreover, by getting funding from the mentioned sources or from government agencies, one will need to get well prepared for presenting and pitching the idea, therefore leading to a better preparation of the entrepreneur in terms of the business itself by elaborating a more concise Business Plan and getting extra knowledge that shall be necessary when presenting.DisadvantagesIt is known that getting other entities along with the new company a payback to these must be done someh