Basic Terms for Getting Financing for Your Business

A variety of concepts that are essential to the day-to-day running of businesses are used daily in the business and financial world. These are terms that can be easily used by any entrepreneur; because, in the course of business, he will have them at any time. 4everpaid.com for further clarification

inancing for your business

 Financing for your business

As we explained the concepts to help you understand and design your marketing strategy a few weeks ago, this time we will start expanding our business glossary so you can become familiar with the basic terms for understanding the financing of your business.

Fiscal year

Both of these words will be familiar to you, as we are always talking about business and business. The fiscal year or fiscal year is a 12-month period, within which you must balance your financial and accounting activities, whether you are working for yourself or having a business.

This closure of activity is very important as it is the basis for paying taxes. In addition, the fiscal year is the benchmark period for analyzing the company’s evolution, making adjustments and also planning for future investments. The fiscal year coincides with the calendar year: it begins on January 1 and ends on December 31.

Share capital

Share capital

It is one of the most basic concepts in accounting. The equity of a company and the irreversible contributions made by its partners make up the company’s share capital. In limited companies, the minimum share capital of the company is 3,005.06 USD.

This amount must be paid in full. The share capital is divided into the social shares held by the owners. In the case of public limited companies, the minimum share capital is 60,101.21 USD and is divided into individual shares. Share capital is a part of the company’s equity and is not affected by economic losses unless it is bankrupt. In this case, in the event of a failure, it may have an impact on the share capital and may require members to return their contributions.

Venture-capital

Another option for financing companies with high growth potential but also some risk is venture capital, for start-ups or start-ups, for example, because their future is not very clear. In return for this investment, venture capital funds purchase the shares of these companies, assist them, and participate in business management.

Generally, private investors are members of venture capital funds, such as individuals, companies, pension funds and / or public institutions, and the risk payoff they support is of great potential for return.

Financial leverage effect

Leverage is the financial leverage effect of refinancing an operation. That is, part of the investment is to finance one’s own money and another part of your bank loans or loans. This investment may be the purchase of an office or shares. With the financial leverage effect, we can invest more money than we have, and thus increase profits.

Suppose we want to buy $ 100,000 worth of shares, with only $ 20,000 left, and the remaining $ 80,000 we borrow from a bank at an interest rate of 10% per annum (we will pay interest of $ 8,000). Our lever effect will be 1: 4; in other words, the bank for each euro that we are focusing on will place four. Following this example, let’s say we sell shares for a year, make money and get $ 150,000.

To calculate the profitability, we will deduct the loan amount from $ 80,000 and interest from $ 8,000, as well as the initial capital of $ 20,000. As a result, the result will be $ 42,000, which means we have a 210% return. Why? Because our investment with our money was only $ 20,000. If we had paid only 100,000 USD, the profit would have been much lower, as a percentage, of 50%. But suppose our investment failed and we lost $ 20,000 instead of cash: we have to repay the bank a loan of $ 80,000 and interest of $ 8,000, but since we have been able to recover only $ 80,000, we are in a state of insolvency.

Cash Flow 

Cash Flow 

is one of the most widely used terms in the financial language, and one of the most important as it measures the liquidity of a company. Cash Flow is the ability of a business to reach liquidity in a given period. That is money left over from this company to deal with debt and suppliers.

It is calculated using the following formula: Cash Flow = Net Profit + Amortization + Provisions . It should not be confused with the result of the company. You may be able to get very good sales but it may be difficult to get your bills. In this case, our balance will be positive but our liquidity will be limited. Factoring and such tools are used to prevent such situations.

Equity loans

money loans

quity loans offer more flexible conditions than conventional financing formulas and are particularly focused on viable entrepreneurial projects with growth prospects.

Loans of this type have two interest rates, one fixed and one variable. Such loans specify the repayment of capital, and in order to make an advanced repayment, it is necessary to increase the company’s own funds and to make a cash contribution.

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