Free «Funding a Business» Essay
An investment banker is a person who works in the banking industry and takes over the responsibility of selling and negotiating terms of investments on behalf of the consumer. The function of an investment banker is to take charge of the tasks of selling and investing away the clients’ money by identifying knowledgeable parties to handle the investments. Investment bankers play an important role, because they are responsible for making sales and investments using their knowledge (Rogoff, 2004).
A stock market is a field where the public can trade companies’ shares. The stock market functions as a display of the fluctuations experienced daily in the prices of shares. The market is accessible from any area, because it is not a physical entity. The function of the stock market is to reflect the changes in the prices of stocks. The stock market is important because it acts as middle ground for purchasing and selling stocks between those who want to invest and other companies.
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Financial management, on the other hand, is the ability of a person to manage his or her private finances. It may also refer to the recruitment of trained financial managers who help the company manage its finances. Financial management is important, because it helps create awareness of the financial procedures and proper money management (Harper, 2003).
Risk financing refers to the act of saving and giving money to the company in case it goes through unforeseen losses. It covers losses that can occur and pools money in case of a crisis. The importance of risk financing lies in that it safeguards the company against unforeseen losses.
The preferred choice of funding the business is selling stock through the stock market. Selling of stock requires issuance of stock to investors who will purchase shares and get a portion of ownership over the business. There are many advantages of this way of funding the business, but it also has its drawbacks. Selling the stock means more capital for a business, which, according to my evaluation, is much bigger than any I could raise from licensing technology or borrowing money from a bank, which limits the amount of money it can give to a new business. Many banks and lending companies tend to give little or no loans to small businesses; this will not help raise enough funds to fund the business, and their lending rates are high (Bangs, 2002). The other advantage of selling stock is that I will not have any outstanding debts, because the money from investors is not to be paid off. This means that I can concentrate on reinvesting in the business and growing it without the stress of having to pay back money to lenders. The money from the stock can be utilized in financing technology applications, purchasing supplies, and expanding the business into new markets. Selling stock to an investor increases the prospects of succeeding and expanding the business because the new management brings in new ways of operation and goals to be achieved (Harper, 2003).
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The disadvantages of selling stock to the business are the loss of control over the decision making, because stakeholders want to be a part of everything that goes on in the business. The shareholders will have an impact on any decision made regarding the operation of the business. This may limit the effectiveness of the business, because it forces one to act differently from when operating solely. The other disadvantage is a takeover, if you sell majority of the stock. The business can be prevented from this by having control over the number of shares or stock it wants to sell in order to retain the majority ownership of the business. The reason why I chose this form of funding is that I will get other stakeholders who will help in the management of the business, and this will reduce the time I will have to spend working on the business. The people who are likely to invest in the business are well-established ones, who will guarantee the growth of my business.
The alternative form of funding is to borrow money from relatives and friends, then I will pay them when the business picks up. However, I cannot take this option because the money I will get from them will not be enough to invest in the technology required in this business.