[This blog post was submitted by guest author Michelle of UK-based RushMyPay.]All businesses do not run smoothly all the time. Any business, be it big or small, will face financial challenges and hurdles every now and then. Every business requires financial help, and every business has some common financial needs. These needs can only be fulfilled after proper evaluation of the core needs.
Based on the period of use, the financial needs of the business are classified in three categories capital types: long-term, short-term, and medium-term.
This is capital required for a longer period, usually over 5 years. Generally, it is used for financing assets and is a permanent part of the working capital. These funds are also required to buy durables. The capital required may depend on the nature and size of the business. This capital will help you to generate income and profits for the long term, as they cannot be withdrawn after investing.
Sources for getting these long-term finance are:
- Reinvesting profits
- Issuing shares and debentures
- Getting loans from financial institutions
- Lease financing and foreign investment
This capital is required for a very short period that is less than a year. Purchasing raw materials, fuel, rent, electricity, payments of wages, repairs of machinery, water, and advertising needs of the business are all met with the help of short-term capital. This capital is also known as working capital, and the amount required depends mainly on the nature of the business.
You can get this type of capital from banks, installment credit, trade credit, or even payday loan lenders that provide you with the required amount, which is borrowed over the short term.
This type of capital is required mostly for 2 to 5 years of the business. Modernization of machinery, renovation of buildings, and advertising expenses are the normal uses for this type of investment. The sources of medium-term capital are similar to that of the sources for long-term capital or finances.
Tips to manage financial needs in your business:
- Prepare a budget so that you can easily identify the ways to meet your financial needs
- Calculate the working time required for your business and schedule accordingly
- Have a clear strategy so that you can keep to your plan as your business grows
- Maintain some sort of stable income that provides a base to work from that is greater than zero
Remember: if you prepare for your business’s financial future today, tomorrow will be much smoother sailing—and a business is much more enjoyable (and profitable) to maintain when things are running smoothly!
About the Author:
Michelle is a tech writer from the UK who is interested in finance. Catch her @financeport!
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