Equity Third Party Capital Social Capital Sources of Financing

Project Equity and Funding Sources

At the beginning of the activity, it is important to know the sources of financing that we have available, either as social capital, own capital or foreign capital. The various ways of financing our project, will allow us to have the necessary money to make equipment purchases and have enough working capital.

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Equity and Third Party Capital, sources of financing

O business plan allows assessing the company's financing needs, whether short, medium or long term. They boil down to the following:

Investment in Fixed and Working Capital
Investment in Fixed and Working Capital

Even before proceeding with the creation of the company, we need to make an economic and financial assessment of the project.

Business plans usually present the information with the structure of the five-year plan.

However, with the information we already have for one year, we are left with the idea of ​​its viability.

Thus, we can make a positive economic assessment, given that the Income Statement shows an Operating Income (RE) of €27.947.

The financial assessment has to be done considering the capital costs and the expected results over 5 years.

In the financial assessment, what we want to know is whether the business is able to generate sufficient income to remunerate the social capital that was invested and after how long the capital invested will be recovered.

The term “payback”, To define the period in which the initial investment equals the accumulated net profit.

This payback period is an important indicator for investors. Often, they only accept that this period is less than 2 or 3 years. A higher payback increases the risk that the investment cannot be recovered. But they are options of the entrepreneur.

Other Sources of Funding

In general, the vast majority of entrepreneurs use personal savings and the support of family and friends.

You can also, if it is not enough, resort to bank loans or similar ways.

Assuming that the company starts with equity of € 5.000 and corresponding to the company's share capital, one of the hypotheses is that the partners, or the individual entrepreneur, make loans to the company itself, this if their savings allow.

Origins of Financing Equity and Equity
Origins of Financing Equity and Equity

In this example, in addition to equity, we plan 32.781, € 23 of partner loans, considered in the table as foreign capital, to guarantee the necessary financing for the project.

At the start, social capital and equity are confused.

Social capital is the value that the company commits to third parties. It is declared in the act of incorporation of the company.

Equity, on the other hand, can be increased during the company's life cycle, for example with results that have not been distributed and remain as reserves. It is the difference between assets and liabilities, to put it another way, the company's net worth.

Another possibility of financing sources is to use one of the several options with the Bank.

Banks offer several credit products and you will have to know what is best suited to the company's needs.

Whether we want a short-term loan to finance momentary treasury needs or if we intend to finance medium or long-term investment, such as intangible assets, for example software or fixed assets such as equipment and buildings.

Incorporation of the company and share capital

To form the company there are several possible options, such as the format of an individual company, with or without limited liability or commercial company.

In order for your personal assets to be protected, the best option is to opt for a limited liability company.

If you do the company with only one partner, you have the option of a sole proprietorship for quotas. If there are more partners, you can opt for the commercial company for shares.

Without going into great detail let’s look at the pros and cons of three of these options

Types of Company, Capital Stock and Constitution
Types of Company, Capital Stock and Constitution

Online services available

Using the digital mobile key, it is possible to create your company and have access to other online services, making the task easier.

If you need you can also register your brand online in a simple way.

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