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Saturday, October 8, 2011

FINANCING OPTIONS AVAILABLE TO ENTREPRENEURS - PART 1 (INTRODUCTION)

INTRODUCTION


Entrepreneurs are seen as folk heroes of business able to overcome insurmountable odds to make a business work. In reality this is not so as majority of start-up businesses actually fail. So who then is an entrepreneur?

The definition of the word entrepreneur has evolved over the ages beginning from the basic definition by the Oxford English Dictionary which is “one who owns and manages a business”. The above definition is a very rudimentary definition of the word and does not capture its essence. Various authors have given a more detailed and concise definitions of the word and below are some examples:

An entrepreneur is one who starts a new business in the face of risk and uncertainty for the purpose of achieving profit and growth by identifying opportunities and assembling the necessary resources to capitalize on those opportunities starting with nothing more than an idea. (startingonlinebusiness.com)

Bob Reiss, successful entrepreneur and author of Low-Risk, High-Reward: Starting and Growing Your Small Business With Minimal Risk, says: "Entrepreneurship is the recognition and pursuit of opportunity without regard to the resources you currently control, with confidence that you can succeed, with the flexibility to change course as necessary, and with the will to rebound from setbacks." (Bob Reiss, 2002)

An entrepreneur is one who organizes a new business venture in the hopes of making a profit. (referenceforbusiness.com)

From all the above definition there are some unifying factors which are:
• Entrepreneurs start new businesses
• Entrepreneurs own and manage a business for the purpose of making a profit
• Takes initiative
• They are risk takers pursuing opportunities without regard to resources at hand

From all the above unifying factors it can also be said that all the other factors hinge on the fact that entrepreneurs are responsible for starting a new business i.e. a business not previously in existence. In order to achieve this they need capital or funding without out which there is no chance of the businesses survival.




The entrepreneur therefore faces a very important question - “SHOULD HE FINANCE WITH DEBT, EQUITY OR BOTH?” Keeping in mind that his choice of financing would have a major impact on the survival of the business.



The Answer to the above question thus depends in part to his or her personal preferences and in part to the recognition of the trade-off that exists between debt and equity with regards to:

1. Potential profitability
2. Financial Risk
3. Voting Control



The need for an entrepreneur to be his own boss plays a critical role in his decision to start up a business and as such it is important that he understands the fundamental distinction between equity and debt.

A survey by the United States Chamber of Commerce Statistics and Research Centre asked business owners to report where they obtained start-up funds and the table below reflects their various sources in percentages.

LOOK OUT FOR PART II - WHAT IS DEBT FINANCING AND WHAT IS EQUITY FINANCING WITH REGARDS TO START UP BUSINESSES

Dr. Ebi Ofrey (MBBS, MBA)

3 comments:

  1. looks like a cross road for many in Nigeria, where partnerships have a poor history and securing debt financing is like climbing mount Everest. there must be a way forward. ride on Doc!

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  2. Thanks Elaye Baba for the vote of confidence. ensure you follow this series on financing options available to entrepreneurs as it would provided you with a much needed insight to make informed decisions about the choice of financing you opt for. in order not to miss out on any of the subsequent articles in this sereis. pls subscribe and follow by clicking on the sign beneath the followers subheading at the upper right hand corner.

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  3. Very good write-up. Entrepreneur definition from startingonlinebusiness.com is on point. Look foward to reading the later articles over the coming weekend. Well done.

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