How do we finance New Business?
It is common to have ideas, but it is difficult to implement them. In fact, the ideas, according to experts, are worth only 5% of a new business, the remaining 95% is the implementation, and often the key to implementation is the detection and proper use of personal resources as sources of financing.
A more detailed analysis shows that only 0.01% of total new business generated around the world receive before starting a business loan banking operations, and just 4% of all new businesses receive capital injections from foreign investors unfamiliar to the entrepreneur. In other words, an entrepreneur who thinks to start your business is crucial to raise money from a bank or an investor, you are betting on the failure very quickly. Once an entrepreneur has started operations customers, suppliers and operations team, so it is easier to get external financial resources.
For entrepreneurs starting a business can quickly detect the personal resources they have at their disposal, and use the most efficient manner. Among the commonly used resources are the following.
Turning the idea into a business:
What are some personal resources that can be used to start a business?
Tangible Assets:
* Personal saving accounts that large or small, should be used for working capital operations and purchase of equipment.
* Personal credit lines offered by banks, to purchase equipment for as long as it has a high salvage value. This means that in case that does not generate income, can be sold as semi-new equipment and to avoid substantial debts.
* Credit cards to be used for working capital transactions involving purchase of raw materials, provided they already have letters of intent from buyers or purchasing agreements, and to purchase equipment with a high salvage value.
* The car, now called “Transmission and Distribution Equipment.”
* The house, which now is called “Corporate”.
* The friends interested in investing, which now are called “partners.”
* The current job, as an entrepreneur could continue to work (and collecting a paycheck) dedicate part time as a new company that begins operations.
* The house of the parents, which means that the entrepreneur does not have to worry about keeping the cost of a house.
Intangible assets:
* The best teachers, who are now called “professional advisers.”
* The brothers, relatives or friends specialists in accounting, law, industry, now are “service providers.”
* The suppliers of inputs, good relations and power of persuasion can afford payments at 30, 60 or 90 days.
* The distributors of the product or service, who can make a strategic alliance.
* Potential customers with whom they can get advance sales at a significant discount.
* The universities with incubator, which can provide important resources.
This list is a good principle to start a business, but there may be many other sources of creative financing. Perhaps the best example of this is the case of Jeff Bezos, who in 1994 decided to start a business that would become one of the biggest companies in the world: Amazon.com
How to start a company that needs over the next five years more than $ 300 million investment? Amazon.com turnover of more than U.S. $ 8 billion a year in its first five years up funding for more than $ 300 million. How did all this?
In July 1994, at the age of 31 years, Jeffrey Bezos founded Amazon.com, a company that sold books online, with a major distribution center for bestsellers and relationships with publishers who distributed the others directly to do ordering.
In July of ’95 Bezos got publishers to give Amazon credit 60 days, while Amazon was selling online to receive credit card payments (cash). The company had 59 days to pay the book to the supplier.
Between December 1995 and May 1996 the company had sales of U.S. $ 4 million and could raise capital by U.S. $ 1 million, mainly used in mass advertising and distribution center. Moreover, at this time Bezos was able to close an alliance with major publishers in the world, who agreed to keep the books in their own inventories to avoid that Amazon had to invest in a proper inventory center. With this the company needed to have only an inventory of bestsellers, but announced that he had an inventory of all books published in the world, for its partnerships with publishers allowed him to do so.
From May ’96 to May ’97, the company billed more than $ 15 million and raised another $ 8 million new members by using the resources to redesign the distribution center and to cover losses caused by high advertising costs . In this period the company announced that about 2% of all books that had sold the inventory, ie that could be sent the next day, while the remaining 98% was in the inventory of publishers, so Shipping would take between 24 and 48 hours.
Between ’97 and ’98, the company went on NASDAQ and raised $ 300 million. At this point the use of resources was to improve all company operations and make it the leading bookseller in the world.
Amazon also has these resources could diversify their sales to devote to replicate its successful model of selling books to sell thousands of different products.
None of this would have been possible if not for the start of operations Bezos used his personal resources to finance your business. Amazon.com teaching case is that there are personal resources that can be used to begin operations, and not all are money.
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