Creating Financing and Marketing a Business

¶ … Financing, and Marketing a Business

An idea for a business can come suddenly or after years of trying to identify a niche in which to market a product or idea. In either case, the process of starting and developing a business is often an arduous and complicated one that requires astute planning long before implementation. There is a difference between those who merely manage an already existing business and those who develop ideas and their own businesses and become entrepreneurs. Entrepreneurship is defined as "the process of identifying opportunities for which marketable needs exist and assuming the risk of creating an organization to satisfy them" (Hatten, 2012, p.24). Once and entrepreneur has established a need for a product or service there are several considerations that must be taken into account, including what type of business to establish and how to market the product to the world. Successful entrepreneurs are able to navigate through many potential business minefields.

Partnerships

If an idea for a business belongs to just one person, then it that person can simply begin to work on the idea on his or her own. However, ideas for businesses often involve more than one person and, often, several people. In these instances, it may prove advantageous to form a partnership to legally bind all persons involved to the business entity. A partnership is any business organization that is formed when two or more persons or entities combine to operate a business for profit (Spadaccini, 2007, p.5). There are several advantages to forming this type of business. First of all, partnerships are relatively easy to establish, often requiring no more than a handshake and a verbal commitment among two or more parties, though some sort of legal agreement should be written up at the time of the formation of the business. There are no annual meetings and few reporting requirements, except to keep other partners informed of ongoing activities. There are also some tax advantages to this type of business, since partnerships do not have to pay the minimum tax that is required of LLCs and corporations (Spadaccini, 2007, p.6).

However, there are also some severe drawbacks to this type of business arrangement as well. If the partnership is not a limited partnership or limited liability partnership, each owner is responsible for losses, liabilities and any debt incurred by the business, regardless of whether or not they were personally involved in the transactions. In this instance, a partner in a business is considered responsible for the actions of all other partners. This can often lead to disputes among the business owners and can lead to protracted legal fights even when the business has been dissolved (Spadaccini, 2007, p.6). Because of this many business owners find that a limited liability corporation or corporation makes more sense when they start their businesses.

Funding Options and Accounting

Once the type of business entity has been determined, funding must be acquired to allow the business to finance the startup costs involved in the production and marketing of the product or service. Most businesses are funded through debt financing from financial institutions, such as commercial loans from banks. These loans do not require equity, though personal collateral may be required to ensure the loan will be repaid. Another downside to these loans is that they require the payment of interest in return for the largesse of the bank. However, there is much money available through grants from different government agencies, such as the Small Business Administration, that do not require any payment at all. While they are difficult to obtain, this free money can obviously be quite valuable to a new business, especially in the field of technology where many grants are currently available (StartupNation, 2012).

In addition to these sources, much business funding comes from individual and institutional investors. This may include equity financing from individuals or institutions who loan money in exchange for a stake in the company's profits. Of course, these investors also have a stake in the company's losses as well, so many of them expect to have a voice in the way the company is run, greatly limiting the owner's independence. Venture capitalists also loan money to companies that have established themselves and are looking to grow to a point where the business is attractive as a potential purchase or to go public in the next several years. Once again, being involved with this type of investor limits strategic independence for the company (StartupNation, 2012).

With funding sources in place, budgeting, analysis, and costs begin to play a role in the company's development. Using managerial accounting, the cost of production can be determined using both direct and indirect costs. While direct costs can be traced directly to the production of the product, indirect costs are more difficult to determine, such as utilities and rent (Drury, 2008, p.48). Incremental analyses should be ongoing for any company and provide a continuing look at the state of the company's finances and budget. If costs for a product are high in certain areas, for instance, an incremental analysis may determine a more effective use of funds in the budget. In this way, the company can continue to adjust the way it spends money and how products and services are priced.

Marketing

Once the product has been developed it must be marketed to the public in a way that makes the product desirable. There are several steps involved in this process and they might best be illustrated using the pharmaceutical industry as a model. Initially, the marketing should be properly planned to address a specific problem, the audience being targeted, and the environment in which the marketing program operates (Weinreich, 1999, p.22). In the case of a drug, like one for heartburn, the problem and audience are easily identifiable, heartburn sufferers need to be relieved of their symptoms. The marketing environment could include newspaper, magazine, internet, and television ads.