Now, up to date we have learned the finances, the types of buisness and how to run it, but how do we gain cash for these buisness ideas? There are many ways people may achieve finance for their companies but today I would like to bring forth two ideas :
Debt Financing: This type of finance is money borrowed. This is money you are obliged to pay back by a certain time and date. You will usually incurr monthly interest rates, which may or may not be a fixed rate depending on the type of loan you are taking out.
Advantages of debt financing : You as the owner are able to raise funds without having to give any portion of control or ownership to the public, as you would have to do in Equity Financing. You will also sustain the amount of cash needed to run an operate your buisness daily needs.
Disadvantages of debt financing: Your business is serviced to a debt, and must oblige to all agreements or subject to default on loan. The interest on these loans may be relatively high as well.
VS
Equity Financing: This type of finance is also known as Venture Capital. This type of finance will require making a company public and selling shares and or parts of ownership in order to generate enough funds to start your business.
* Note Venture capitilist always expect a high return on their initial investment.
Advantages of equity financing: The business will not be listed as collateral incase of loan default. You will have suffiecent amount of funds to start up your business, as well as more finance for capital product.
Disadvantages of equity financing: Shareholders have some ownership in the company, and business profits must be given out in forms of dividends. You may also have to provide your venture capitalist with a large portion of ownership rights to all major decisions.
These are some ways to generate enough funds to operate your business successfully. Before opening a buisness you must look at all the cost, and go over it with your financial planner to decide which option is best for you, if you find that these may not be great options for you consider looking into Franchise's which are known as "Put the key in the door and start" business, where all is done for you.
Showing posts with label assets. Show all posts
Showing posts with label assets. Show all posts
Monday, March 4, 2013
Friday, March 1, 2013
What to know when starting a business
Throughout the past couple weeks I have been blogging to all of you my viewers on the importance of financial literacy. Now with the foundation I have provided for you, we are able to take it to the next step. What do you really need to know when starting a business? Well first you need to decided what type of business you would like to run here are the following types:
Sole Proprietorship : This form of business is usually deemed the "simplest form." Having a sole proprietorship is saying that you and the buisness are one of the same entity, meaning that all your personal assets and or liabilities are all of the same with the business. There are no legal distinctions between the two. If the owner dies, so does the business with them.
General Partnership: This form of business is usually two or more parties creating a buisness in order to generate profit. You can have a silent partner of the business of which they are usually just a cash flow, or a general partner which would share the liabilities and assets with you as a whole. Like a sole proprietorship both partners in a partnership are one with the business there is no legal distinction. When one of the partners die, so does the business.
Corporation: A corporation is different from both sole proprietorship and general partnership, because a corporation is a seperate legal entitity , it is a business made up of shareholders. Having an incorperated business would mean that your personal assets and liabilities are none of the same with your business. A corporation has unlimited life, and its own assets. If the company were to be sued , you yourself would not be personally liable but the company as a whole.
A corportaion is usually broken down into two types of stocks:
Common Stocks: Investment into a company with voting rights in relation to the board of directors
Preferred Stocks: Investment into a company with no voting rights , most have divedend rates while common stocks do not.
I would like to leave you all with the idea of how can you generate income for your business? Once you have decided what and how your going to create your business, the next step is always the cash flow, think of some ways you can generate cash flow for your business.
Sole Proprietorship : This form of business is usually deemed the "simplest form." Having a sole proprietorship is saying that you and the buisness are one of the same entity, meaning that all your personal assets and or liabilities are all of the same with the business. There are no legal distinctions between the two. If the owner dies, so does the business with them.
General Partnership: This form of business is usually two or more parties creating a buisness in order to generate profit. You can have a silent partner of the business of which they are usually just a cash flow, or a general partner which would share the liabilities and assets with you as a whole. Like a sole proprietorship both partners in a partnership are one with the business there is no legal distinction. When one of the partners die, so does the business.
Corporation: A corporation is different from both sole proprietorship and general partnership, because a corporation is a seperate legal entitity , it is a business made up of shareholders. Having an incorperated business would mean that your personal assets and liabilities are none of the same with your business. A corporation has unlimited life, and its own assets. If the company were to be sued , you yourself would not be personally liable but the company as a whole.
A corportaion is usually broken down into two types of stocks:
Common Stocks: Investment into a company with voting rights in relation to the board of directors
Preferred Stocks: Investment into a company with no voting rights , most have divedend rates while common stocks do not.
I would like to leave you all with the idea of how can you generate income for your business? Once you have decided what and how your going to create your business, the next step is always the cash flow, think of some ways you can generate cash flow for your business.
Saturday, February 23, 2013
The idea of being penniless on paper
Last post I left you with a question , using the prior example how could we make ourselves appear penniless on paper? The idea of making ourselves penniless on paper is one great key to financial success, because I have mentioned numerous times the market is not safe, investing is risky and if your not willing to take the risk your not on the path to becomming a successful investor. A great investor will have plans for each market, whether the economy is doing great or poor, they have a plan to make it work for them. Which brings me to my point of being penniless on paper. You always see people become instant millionaires from a great idea, facebook is a prime example. But what happens to a lot of these instant millionaires, they have never learnt to invest their money like the rich do, so they loose it they go bankrupt. Whether it be over a lawsuit or over spending of money. This is because they did not properly secure their assets to make themself look poor, but their business rich.
When owning a corporation you and your business are seperate legal entities, anyone owning a sole propriotorship or partnership, if the business fails one or both partners is legally endebted to any liabilities, which can be paid off with personal assets like your home and cars if the partners defaulted. I believe that a corporation is the best choice because it is the most secure for the founder.
The idea of being penniless on paper is transfering all your assets into your business. Make your business earn the money , not you. When your business is the one earning all the money, one paper you can recieve many tax incentives, and breaks as well as keeping yourself secure incase of a lawsuit towards you it cannot directly harm your business or a lawsuit towards your buisness cannot directly effect you. Knowing how to harvest the idea of being penniless on paper will reward you greatly in your future endvaours.
When owning a corporation you and your business are seperate legal entities, anyone owning a sole propriotorship or partnership, if the business fails one or both partners is legally endebted to any liabilities, which can be paid off with personal assets like your home and cars if the partners defaulted. I believe that a corporation is the best choice because it is the most secure for the founder.
The idea of being penniless on paper is transfering all your assets into your business. Make your business earn the money , not you. When your business is the one earning all the money, one paper you can recieve many tax incentives, and breaks as well as keeping yourself secure incase of a lawsuit towards you it cannot directly harm your business or a lawsuit towards your buisness cannot directly effect you. Knowing how to harvest the idea of being penniless on paper will reward you greatly in your future endvaours.
Monday, February 18, 2013
90/10
I would like to start off this post with a blank Income Statement and Balance Sheet.
(This image was taken from Rich Dad's Poor Dad's Guide to Investing by Robert. T Kioysaki)
The 90/10 rule is " 10 percent of the investors makes 90 percent of the money."(Kiyosaki,2013)
This concept is extremely important, because there is no wrong answer. It takes a lot of education and experience in becomming a investor, but it is the way an investor thinks that will differ oneself from being part of that 10 percent who makes all the money. The trick of investing is not luck, you may find a lucky investment once, but how will you keep it a float? Investing is all about creating an investment from something, another investor cannot see.
Let me give you an example: For many people building their own business is a dream, so we will use that concept. Your business you've created it, you never purchased your business it was your own idea that you put together and turned into an Asset. Your buisness now , whatever it may be has bloomed off, not enough to make you rich but enough to keep you comfortable. (As a side note, please remember the difference between Secure, Rich and Comfortable, and why it is important to set yourself up for all three plans.) This business is now generating an income, you have done what is needed to do, you have hired trusting employee's so the business does not demand so much of your Time another valuable asset. Now that your busines is creating an income it is paying off yourself while putting money in your income statement. Asset--> Income . Now with the business generating enough excess cash, you have done some research on a piece of land you wanted to invest in for years, you've done your fair amount of research and you pay for it with your business line of credit. The land ends up being a worthy investment like you believed, and you build a motel on it, which one day generates enough income to become a hotel, then a resort. This example would take tons of time, but it is just one way that you can use an asset to pay for another asset, you never had to take the money out yourself, you never had to pay for it yourself. You simple used your buisness, made your business pay it off, and created a new business within it that eventuall put you in the 10 percent making 90 percent of the money.
The concept I would like to leave you with today is how would you fill your asset colum? Think outside the box, think of ways you can earn money without spending money, using your assets to generate a cash flow to pay other assets off ultimately creating a rich life for yourself.
The 90/10 rule is " 10 percent of the investors makes 90 percent of the money."(Kiyosaki,2013)
Why is this? What is the difference between one investor and another , in order for only 10 percent of them to make 90 percent of the money.
The answer is how you look at the picture above, and fill those colums. The question to ask yourself is how do you fill your asset colum, without ever having to purchase that asset? In my earlier postings I enduldged you in the concept that your assests pay off your assests which is why we studied the Three E's , and our goal of accumulating Excess cash was only possible because at that time our assests were paying eachother off , ultimately gereating more income, while having a stable excess cash flow. But how does someone manage to create excess cash , and fill one's asset colum up without paying for the asset, how can you start with nothing and end with something?
This concept is extremely important, because there is no wrong answer. It takes a lot of education and experience in becomming a investor, but it is the way an investor thinks that will differ oneself from being part of that 10 percent who makes all the money. The trick of investing is not luck, you may find a lucky investment once, but how will you keep it a float? Investing is all about creating an investment from something, another investor cannot see.
Let me give you an example: For many people building their own business is a dream, so we will use that concept. Your business you've created it, you never purchased your business it was your own idea that you put together and turned into an Asset. Your buisness now , whatever it may be has bloomed off, not enough to make you rich but enough to keep you comfortable. (As a side note, please remember the difference between Secure, Rich and Comfortable, and why it is important to set yourself up for all three plans.) This business is now generating an income, you have done what is needed to do, you have hired trusting employee's so the business does not demand so much of your Time another valuable asset. Now that your busines is creating an income it is paying off yourself while putting money in your income statement. Asset--> Income . Now with the business generating enough excess cash, you have done some research on a piece of land you wanted to invest in for years, you've done your fair amount of research and you pay for it with your business line of credit. The land ends up being a worthy investment like you believed, and you build a motel on it, which one day generates enough income to become a hotel, then a resort. This example would take tons of time, but it is just one way that you can use an asset to pay for another asset, you never had to take the money out yourself, you never had to pay for it yourself. You simple used your buisness, made your business pay it off, and created a new business within it that eventuall put you in the 10 percent making 90 percent of the money.
The concept I would like to leave you with today is how would you fill your asset colum? Think outside the box, think of ways you can earn money without spending money, using your assets to generate a cash flow to pay other assets off ultimately creating a rich life for yourself.
Monday, February 11, 2013
What is a real asset?
Most people today want to be rich, but no one is willing to learn. Like I have constantly stressed , the importance of financial literacy is more than knowing the definition of a word, but to understand the meaning. Many people want to become a rich investor, but many do not know the simple difference between an asset and a liability. An asset in the simplest terms is something that puts money into your pocket , where a liability is something that takes money out of it. The distinction between the two can be shown the examples below for further understanding.
(Image taken from Rich Dad's Guide to Investing By: Robert T. Kiyosaki)
Please Note an asset puts money into your income, on your income statement.
(Image taken from Rich Dad's Guide to Investing By: Robert T. Kiyosaki)
Whereas a liability will put money into your expense colum, in other words taking money from your pocket.
A viewer of this blog asked me a question "Why is it so important to be able to know the difference between being : Rich, Comfortable or Secure; the reason being can be deprived from the examples above. A Secure investor would have a balance sheet that is leveled between assets and liabilities. So although they may not be poor, they are also not in a situation to become rich.
(Image taken from Rich Dad's Guide to Investing By: Robert T. Kiyosaki)
Please Note an asset puts money into your income, on your income statement.
(Image taken from Rich Dad's Guide to Investing By: Robert T. Kiyosaki)
Whereas a liability will put money into your expense colum, in other words taking money from your pocket.
A viewer of this blog asked me a question "Why is it so important to be able to know the difference between being : Rich, Comfortable or Secure; the reason being can be deprived from the examples above. A Secure investor would have a balance sheet that is leveled between assets and liabilities. So although they may not be poor, they are also not in a situation to become rich.
A comfortable lifestyle would be the same as the "Average Joe" in regards to the balance sheet and income statement someone who is comfortable would show a minimal amount of assets while having a liability colum full.
A rich investor would have his assests pay off eachother as well as provide income for further investments as well as personal net income. I will go more into depth of what it takes to become a rich investor in my following blogs. For now I would like all readers to adapt and understand the basic meaning between an asset and a liability , it is crucial for any type of success in the financial industry.
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