What are some ways you can fund your business?

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.

Three Types of Income

Throughput the weeks I have touched upon the subject of creating more than one plan for yourself in order to be successful you must always have a plan no matter the situation, lets refer back to the three types of lifestyles : Secure, Comfortable and Rich.  Just as I had said in order to prepare for being rich, you must prepare for being secure and comfortable as well, I cannot stress enough that one willing to take these steps must create each portfolio for themself.  Today I would like to introduce to you the Three types of Income :

 

 

1. Ordinary earned incomeThis type of income is what mainly the poor, or middle class focus on. This income is generated from wages, or paychecks from a secure or comfortable job title that you may have aqquired with or without post secondary degrees. This income is also the highest taxed income , which makes it harder for you to become rich by simply saving your money.
2. Passive income
This type of income is usually derived from many different entities. One may earn a passive income from license agreements, or patents to a product, or even through real estate.  Real estate is a major factor in creating your passive income. This type of income has many tax benefits.

3. Portfolio income
This type of income is what we will call "Paper Assets." Paper assets such as : Stocks, Bonds and Mutual funds. On an investment stand point this portfolio income is by far the most popular, this is because of new technology, everything as I mentioned is paper assets, it is far easier to maintain and track tons of investments because it is all generated online through markets.

 

 

From the diagram drawn above , this is the direct corrolation between the three types on income. Simple really, you want your ordinary income, to convert into passive and portfolio income. Like I mentioned earlier the difference between the rich, and the middle class/poor is that the rich focus on their portfolio and passive income, where the poor and middle class focus on their ordinary income. Let me give you an example :

Say you have landed yourself a job at a local bank, the job seems secure enough good pay so you keep it, you are generating an ordinary income. With these wages you tell yourself its a good time to invest in the real estate market, so you buy a house worth $80,000 for $60,000 on a forclosure auction. You now have generated $20,000 profit for simply investing in the porperty, you find a new couple who would like to rent out the home for $1400 a month, now your simple investment has made you a profit of $20,000 and is also generating you a passive income because you now earn a monthly $1400 for rent.  With this new found cash you go to your financial advisor and say you want to invest in some stocks, mutual funds and or bonds. Remember investing is risky and does not always have a positive output, but a great investor knows how to invest in a good and bad market, but for this case we will say you made a profit of $30,000 on your initial investment. You can see through this example that your Ordinary income generated a Passive Income which then generated a Portfolio income. This brings back into play your assets paying off your assets creating strict profit for yourself, for further explination for any new followers to this blog please refer to earlier blog postings to get up to speed.

I want to leave you with the idea of creating your three types of income, and stump you with a question. From the example listed above, how can one create a profit but seem penniless on paper?