Obtaining Business Capital Essay
- Length: 6 pages
- Sources: 3
- Subject: Business
- Type: Essay
- Paper: #68724029
Excerpt from Essay :
The author of this report is asked to answer to several questions and specifications surrounding a business venture and how exactly it would and should be pulled off in an effective and well-performing manner. The form and function and "how" the business would be established is the first thing while the next is the funding sources that would be undertaken to get things going. The form or forms of intellectual property that would have to be enforced and protected as next and then the overall way in which the business will be created or acquired. How the sources and need for capital would change after five years of operation is the last thing to be discussed. While getting a business up and running requires a mass infusion of cash and/or borrowed money to get going, the business will eventually be lucrative.
As for how to establish a company and the business structure that will underpin the business, those two answers are fairly complex but the composition and ownership of the business should make it quite clear who will control the business and how. As for the structure of the business, it all depends on who is involved in running or owning the business. For a business that is a sole proprietorship or family-oriented in nature, an S-Corporation would make the most sense. However, if there are multiple non-related partners involved and/or a corporate structure other than S-Corp is required or better for the firm, then a limited liability corporation (LLC) of some sort would be wise. For the purposes of this report, presume that it is just the author running the business. As such, an S-Corp would be the best so that the individual and business income can be filed on one return and the taxes of the corporation (and family) can be limited. Salaries paid to owners or other people would be taxed in full but profits of the business can be exempted from many payroll taxes and are usually only subject to income taxes. This means no FICA is applied against much to most of the income of the business. The hitch is that the salary paid to the employees (including the owner) has to be minimum wage and it cannot be a low-ball amount that is not commensurate with the position (IRS, 2014).
As for the rest of the establishment of the company, this would entail registered the business with all of the relevant federal, state and local tax agencies as well as trademarking the name at all of the relevant levels as well so competing firms are unable to legally use the name without potential to likely legal repercussions. This point segues nicely into the overall intellectual property of the firm. Not all firms have to make heavy use of intellectual property measures. Good examples are lawyers, writers and such because beyond they words they write or publish, there is not much "property" that has to be protected and it is easy to figure out and warn people when it happens. This stands in contrast to companies that have distinct product lines, names and patents that have to be protected so as to prevent other firms from appropriating the ideas and/or names for their own profits, often at the intentional expense of the people who legitimately own the rights. Inadvertent uses by other firms can be avoided by having the proper registrations and patents on file with the proper agencies. Any reputable business person will not use a name that is owned by someone else out of fear of being punished legally and/or just because they would never deign to infringe upon or hurt someone else's business because they would want the same respect in return (Nolo, 2014).
As for the initial capital for the startup, it's always good to have cash on hand to use but there are two major concerns. First, hardly any business is profitable from the word "go." There are exceptions such writing and the like whereby a minimal amount of time and a computer can be used to get the ball rolling. However, the revenue from any firm will start as a trickle before if ever can become a flood and the person running the business has to live on something in the meantime. Much of the time, this either means borrowing the money or starting off small as a side project and then transitioning from the normal day-time gig to the new business if/when things go well. The wiser thing to do, at least in terms of risk, is to segue into the field as money and time allows but a business loan can work if the business land is solid and the customers are out there to find and how they will be found is clear-cut and just a matter of execution. However, especially if the business is small, it is always better to use a job that is already had and/or other sources of income (spouse working, etc.) and thus transition from being an employee to being owner when things start to ramp up sufficiently.
As for the overall approach of the business as chosen from the two options offered in the assignment, the author of this report would choose an entirely online business. The reasons for this are simple. First, there is no travel/commuting costs and any shipping expenditures can usually be transferred to the customer in the form of billed rates and/or the cost of buying the good. Second, a computer is sometimes the only thing needed but a small to medium space beyond a desk might be needed. Even so, the need to rent a business space is more of a preference or luxury rather than a hard need that has to be done. Third, the marketplace for a business can easily be national, if not international. Operating internationally may sometimes be more trouble than it's worth, but can be a good thing depending on the nature of the business or product. If the product is also virtual, such as computer coding, writing, etc., then the hassle is not usually all that bad.
As for the nature and conditions of a business that has been running for five years and what the capital needs for such a firm would look like, the need for money that is not coming from the execution of the business should be next to none (if not zero) at the five-year mark and should tend to get smaller and smaller as the business grinds on until he need for external capital is zero. The only reason exception to this would be if the business wants to take on a major expansion such as purchasing a larger building or buying more equipment. A third reason would be a reinvention of the business being necessary. A real-world example of this would be Blockbuster should have done years ago in light of what Netflix offered in its early days. The really silly (and sad) part about Blockbuster is that they had the opportunity to buy Netflix outright for $50 million some years ago and they passed…now Blockbuster is completely gone, at least in a brick and mortar form. It was snapped up by Dish Network and now the physical stores are closed (Peterson, 2013).
Anyway, when looking at capital sources, the three main sources overall would be day-to-day revenue, investors and loans from banks that cater to business. The order in which they appear are also the order in which they should generally be sought. If investors are willing to put down money to make a business grow, they will obviously want to see a return on their money (although it is not generally legally mandated that they even see such a return) but their conditions and rules will typically not be as numerous and expansive as they are with banks. Again, organic cash on hand is the way to go but there are options. However, turning to outside sources without having a business case for the money and a solid business plan overall is not a good idea. Banks in particular car not a bit if the business fails…they will still want to see their money back.
The assignment being completed in this report also entrepreneurship and how important it is to know and harness. It is not a meaningless buzzword with no weight or significance. One can use the aforementioned Blockbuster example as a teachable moment. Blockbuster should have known that the days of video rental places were coming to an end. Physical DVD's and Blu-Ray's will certainly be replaced by streaming content. The world is not there yet…but it is certainly heading that way. Netflix, Vudu and Amazon all have realized explosive and never-ending (it seems) growth while Blockbuster has ceased to be. Rather than latch onto a business that they should have known would replace their own, they associated with Enron (yes, that Enron) and we all know how that turned out. True, just like…