Introduction

There are several reasons as to why people start business ventures. However, the most common reason as to why people engage in entrepreneurial practices is the desire to have better lives through increased revenues. Fr a business venture to be successful and fulfill the desire of the investors, it is important to consider several factors that will lead to a success story. Several questions such as the kind of business, source of funds and location of the business are some of the critical issues that must be addressed before engaging in any enterprise (Awe, 2012). In this chapter, we will discuss at length on these and other critical issues necessary in a successful business venture.

Steps in a business venture

In order to come up with a perfect business venture, it is important to have a clear picture in mind of what exactly you want to fulfill. This can only be achieved through developing a good business plan. A business plan is an essential component in business venture as it provides a roadmap to the intended business (Ochtel, 2009).   The business plan introduces the kind of business one intends to venture. Crucial information regarding the location, product, ownership and competitors are well discussed in the business plan. The business plan also defines the organizations vision and mission statements of the business which defines the short term and long term objectives of the organization.

The type of business ownership is another important consideration essential before venturing in any business activity. An entrepreneur must make decisions on whether to operate as a sole proprietor, as partners or as an incorporated body (Ochtel, 2009).  It is essential for the entrepreneur to understand the difference between the different types of business ownership and make the informed choices. For instance, a corporation is the best among the three since it is a separate entity from the owners and has access to more capital. The business plan must also declare the financial requirements of the business as well as the projected growth in the coming years. It is also paramount that one describes the operational and marketing plans intended to steer the company to desired levels. In essence, the entrepreneur must have a clear conviction of what they want to achieve in the business.

Sources of business funding

After determining the kind of business to invest in, the next step involves getting the necessary startup capital. Finances are critical to the success of any business venture and are one of the hardest hurdles especially in new businesses. Entrepreneurs must derive funds for running the business and ensure annual growth (Leong & Tan, 2014).   Sources of finances vary with the form of business ownership and the size of the business. It is also imperative that one understands the amount of monies needed and for what purpose that the organization needs the money. Lack of enough financial muscles is one of the pitfalls that result in business failure. For this chapter, we will analyze the different sources of finances available for a limited company.

Equity financing

This is a source of finance where the owners of the business contribute to the business with aspirations of getting profits in future. In case of a limited company, the investors make their contribution in form of shares with the hope of getting dividends at the end of accounting period. For a startup company, there are both ordinary and preference shares. Ordinary shares are the kind of investment where the shareholder can get return on investment only when the company makes profits (Awe, 2012). On the other hand, preference shareholders are entitled to fixed amount of dividend regardless of the financial position of the company.  Venture capital is another source of financing and equity financing where venture capitalists invest huge sum of money in exchange for equity in the company.

Advantages of equity financing

• Most of equity financed funds are not repayable but only earn profits and dividends.
• Financiers have interest in the business venture and thus provide credibility to the organization.
• No interest payments on the money used to finance the business.

Disadvantages

• Equity investors are owners of the business and have influence on the daily operations of the company.

Debt financing

The other common source of financing is the debt financing. This involves borrowing   money for the business from outside with a promise of repaying the sum plus agreed interest. In most cases, the money is repaid at agreed monthly installments. The borrower is also expected to provide collateral for such loans to safeguard the creditor just in cases of default. The moist common source of debt financing for limited company is the bank (Ochtel, 2009). Other forms of debt financing include loan stock, debentures and convertible debentures that are paid at maturity.

Advantages

• The investor or the creditor is not an owner of the company and thus there is no interference with the daily operations of the organization.
• Debt financing offers tax advantage to the company. This is because the interest paid n such loans is tax deductible.
• Timely payments results in increased ratings thus making it easy for future financing.

Disadvantage

• Debt financing is at times difficult to get especially for startup companies.
• Dept repayment is fixed obligations despite the financial position of the organization which could be detrimental especially during hard economic times.

Lease

Lease is another equally important source of financing for a startup company. This refers to a situation where the organization has the right to use an asset without debt or equity financing. This is a situation whereby there is a legal agreement between two parties on how tangible resources such as building or land will be used for a pay usually paid annually (Leong & Tan, 2014).   The startup company may get into an agreement with a leasing or the financing organization on the annual payment for use of an asset with an option of renewing the lease term after expiry.

Advantage

• It gives an organization an opportunity to utilize an asset that would otherwise be unaffordable.

Disadvantage

• The initial payment is usually a lump sum which may be difficult for a start up to raise.

The best source of finance

The best source of finance for a startup company is equity financing. This is because it is easily acquired and there are no chances of further loss apart from the initial investment. Debt financing is a bureaucratic process and the collateral required may not always be available (Ochtel, 2009).  In case of default, the company may be liquidated to recover the loan thus leading to massive loss. It is also worth noting that startups have no guarantee for success and thus it would be risky to depend on debt financing.

Forms of Intellectual property

Intellectual property (IP) is a legal concept that aims at protecting creations of mind. There various examples of business inventions that should be protected under the property laws. It is the obligation of the entrepreneurs to have a clear understanding of the property protection law to protect their hard earned creations and ideas from unfair competition (Waelde & Laurie, n.p.). IPs is intangible assets to the company and is therefore essential for the overall performance of the organization. The following are the different forms of intellectual property commonly protected under the intellectual property law.

Copyrights

This is a form of protection whereby the works of authorship is protected. Computer software, literature and musical works are the most protected items under the copyright protection laws. When one has a copyright, he or she has exclusive rights of reproduction, adapt and distribute the creation of mind. It is important to note that the life of a copyright begins at registration and for the whole life of the copyright holder and additional seventy years after demise.

Patents

This is a form of intellectual property that grants rights on inventions. The patent holder has the absolute right to prevent others from interfering with the invention either through, duplication, selling or using the invention in any way that hurts the holder. Patents rights are usually of three types namely; design, utility and plant (Waelde & Laurie, n.p.). In a business set up, utility patent is the most common type and covers any machine, process, article of manufacture, composition of matter and any new useful improvement in the daily operations of the business.

The other type of patent is the design patent. This form covers any new, original and ornamental design for an article of manufacture. In most cases, a design patent last for 14 years. Additionally, a plant patent covers any new variety of a sexually produced plant. The most notable aspect of a plant patent is that it lasts for twenty years.

Trademarks

Trademarks refer to symbols, design or phrases that distinguish a form of business from the competitors. In most cases, the trademark in a business tries to create attention to consumers and plays a significant role in the success of the business venture (Waelde & Laurie, n.p.).  Before registering for a trademark, the entrepreneur must carry out an intensive research to ensure that there no such rights that existed before.

Trade secrets

This refers to a device, formula, process or other business information that a company keeps secret for a competitive edge against the competitors. Unlike the other forms of intellectual property, trade secrets are not registered and are only valid for the time that the business entity is capable to control the disclosure and use of such important information.

Plan to intellectual property protection

As earlier indicated, intellectual property is an essential asset of the organization. it is therefore imperative to ensure that all the necessary measures are put in place to ensure successful protection of the rights. For those which are registered, it is the obligation of the management to ensure timely registration and follow up exercise to ensure that no one infringes with the organization’s rights (Waelde & Laurie, n.p.).  For the trade secrets, the organization must put I place non-disclosure agreements, restricted access to confidential information and post employment restrictive covenants essential to prevent vital trade secrets. Other security measures must also be enhanced.

Revamping the product

There is a time during the course of business that an entrepreneur may decide to revamp the product for better performance and increased profitability of the business. During such moments, the entrepreneur must reconsider some of the critical factors considered in the initial stage of business development (Ochtel, 2009).  For instance, the business must re-think its intellectual property for the new product. This new creation must be protected at all costs to ensure that the profitability of the organization is not at stake. Additionally, the entrepreneur must reconsider the current financial position of the organization and determine whether or not the organization financial status can guarantee the intended change of product (Awe, 2012). Just like in the startup capital, the source of financing in an operating company also include debt and equity financing but with additional elements and ease of obtaining finance.

For instance, the company may decide to re-invest some of the business retained earnings. If the company has over the years made some significant profits, the shareholders may decide to re-invest some of these profits in the business for growth injection (Ochtel, 2009).  The company may also decide to go public through an Initial public offer (IPO) or right issues which are also fundamental source of fiancés for an organization.

On the other hand, debt financing can also be another important source of finance. At this junction, the company has already proved its creditworthiness and thus making it easy to get bank loans and any other form of borrowing. The company has also acquired new assets which can be used as collateral for loan. It is also worth noting that the organization has the capability to float debentures and other sources of securities to increase their creditworthiness. Capital ventures are also likely to increase since the business venture will be evaluated based on the previous performance. In essence, the business funding of a business enterprise that is operational is much easier as compared to a start up.

Conclusion

As earlier stated, business venture is a vital aspect that needs clear conviction of the short term and long term objective of the enterprise. This conviction is guided by a business plan that outlines the intention of the business, financial requirements, marketing and operational plan as well as the nature of industry that the enterprise will operate (Awe, 2012). In most cases, many businesses fails at the planning stage and it is for this reason that any entrepreneur must be very cautious on the planning process.

Issues such as sources of finance, intellectual property and market analysis must be dealt with accordingly. The decision on choice of finance requires extensive evaluation of the merits and demerits off the various sources at the disposal of the company. Failure to make informed choices of business financing can be detrimental to the business growth and development. Heavy financial obligation is not advisable especially for new ventures and debt financing is only viable at later stages of the business (Leong & Tan, 2014).  It is also worth noting that debt financing is also not an easy option for startups due to the strict restrictions involved in debt financing.

A business venture must also take care of the intellectual property since it is an essential asset of the organization. Any new development either in terms of product, process or trade secrets should be accorded maximum protection for the overall development of the company.

References

Awe, S. (2012). The entrepreneur’s information sourcebook charting the path to small business success (2nd ed.). Santa Barbara, Calif.: Libraries Unlimited.

Leong, K., & Tan, W. (2014). Venture Capital How to raise funds for your business. Singapore: Marshall Cavendish.

Ochtel, R. (2009). Business planning, business plans, and venture funding: A definitive reference guide for start-up companies. Carlsbad, Calif.: Carlsbad Technology Group.

Waelde, C., & Laurie, G. (n.d.). Contemporary intellectual property: Law and policy (Third ed.).

Do you need an Original High Quality Academic Custom Essay?