Boundless: Business: "Chapter7, Section 4: Financing Company Operations"

Key Points

  • Financing the operation of a company can come from within the firm itself or by using external resources.
  • How a company is financed has implications for how profits and potential liabilities are distributed.
  • The participation of external sources of funding may bring other benefits outside rather than just the funds themselves.


Term

  • BootstrappingFinancial bootstrapping is a term used to cover different methods when someone wants to avoid using the financial resources of external investors. The use of private credit card debt is the most known form of bootstrapping, but a wide variety of methods are available for entrepreneurs. While bootstrapping involves a risk for the founders, the absence of any other stakeholder gives the founders more freedom to develop the company.


Examples

  • Examples of bootstrapping include: Owner financing, sweat equity, minimization of the accounts receivable, joint utilization, delaying payment, minimizing inventory, subsidy finance, and personal debt.
  • Examples of Bootstrapping: Owner financing Sweat equity Minimization of the accounts receivable Joint utilization Delaying payment Minimizing inventory Subsidy finance Personal Debt
  • Many successful companies including Dell Computers and Facebook were founded using financial bootstrapping.


A company can be self-financed or financed through the solicitation and participation of outside investors .



NGO Financing

A non-governmental organization (NGO) is a legally constituted organization created by natural or egal persons that operates independently from any form of government.


Self Funding

Financial bootstrapping is a term used to cover different methods for avoiding the use of financial resources that come from external investors. The use of private credit card debt is the most known form of bootstrapping, but a wide variety of methods are available for entrepreneurs. While bootstrapping involves a risk for the founders, the absence of any other stakeholder gives the founders more freedom to develop the company.

There are different types of bootstrapping:

  • Owner financing
  • Sweat equity
  • Minimization of the accounts receivable
  • Joint utilization
  • Delaying payment
  • Minimizing inventory
  • Subsidy finance
  • Personal Debt


External Financing

Many businesses need more capital than can be provided by the owners themselves. In this case, a range of options are available including:

  • Angel investors
  • Venture capital investors
  • Crowd funding
  • Hedge Funds
  • Alternative asset management

Some of these sources provide not only funds, but also financial oversight, accountability for carrying out tasks and meeting milestones, and in some cases, business contacts and experience. In many cases, these services are in return for an equity stake.

In short, financing the operations of a company can come from within the firm itself or by using external resources. How a company is financed has implications for how profits and potential liabilities are distributed

Many successful companies, including Dell Computers and Facebook, were founded using financial bootstrapping.

The participation of external sources of funding may bring other benefits outside of the funds themselves.

Last modified: Monday, January 22, 2018, 6:59 PM