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Entrepreneurship – from ideas to reality
Entrepreneurship – from ideas to reality

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Session 7: Financing your business

Introduction

One of the main reasons businesses fail is that they run out of cash. Your business model might be sustainable in the first instance through investment of your own money. It might be sustainable over time through retained profits. However, it is unlikely you will be able to finance growth and expansion that way, indefinitely.

Every business needs to capture some percentage of the value in each transaction they make. In Session 3 you learned about how that value is provided. Capturing the balance of value means there is sufficient value to you to make investment of your time and energy worthwhile, and also enough reason for your key stakeholders to transact with you. In other words, it is not only a matter of you maximising your profits, your key stakeholders (suppliers, customers, distributors, investors, staff and so on) should also perceive that there is mutual value in the deal, making it worthwhile for them.

Sketch of a bar chart showing an upward trajectory.
Figure 1 Capturing value in each transaction leads to sustainability

There are many ways to finance your business, however, the key to a sustainable business is cash flow management. Managing cash flow means being able to understand how and when income and expenditure arises, and being able to forecast and plan to ensure that you can meet financial obligations as they arise in the short and long term.

By the end of this session, you will be able to:

  • recognise alternative sources of finance for a new business and how to choose between them
  • understand some of the key financial concepts needed when running a business
  • understand the two most important financial statements that you will need to manage your business
  • recognise the ways in which you can improve your cash flow management and sustain your business
  • understand how investors and lenders evaluate your business when they consider funding it.

This session will not make you a finance expert but it will put you in a better position to evaluate the benefits, risks and obligations that each form of finance takes. It will also introduce you to some concepts that will allow you to have a more informed discussion with a finance professional.

Many other courses are available to improve finance skills and it is recommended that you study finance more closely after completing this course if you don’t have access to the knowledge and skills already. You can find finance courses on OpenLearn here [Tip: hold Ctrl and click a link to open it in a new tab. (Hide tip)] .