Today, investing has become one of the most popular forms of earnings. Almost every person at one time thought about investing a certain amount of money in some promising project. In our article you will learn what borrowed and borrowed funds are, what is the difference between these two concepts, what are the ways to attract funds to the organization and how to properly manage the money received. Such information will be relevant for investors and entrepreneurs.
What are means of financing?
In short, the funds raised are the unscheduled income of the enterprise from the investor or other companies, which is aimed at improving business productivity. However, we all understand that no one will carry out financing just like that. That is why there is a special system of securities that give investors the right to profit from the company in which they invested.
If we talk about project financing, then this means the totality of forms and methods of providing the enterprise necessary for the development of a competent project. That is, we are not even talking about the enterprise itself, but rather about the competent preparation of a business plan necessary for the development of the business in the future. This type of financing differs from the usual one in many points, but it has the same goal - making profit from a developing project.
That is, in simple words - the funds raised by an enterprise are a certain amount of finance that an entrepreneur has the right to spend on developing his business. However, any debts will have to be repaid in due time. The return of borrowed funds may look like dividends to shareholders, interest to the bank or coupons from bonds. The size of borrowed and returned funds depends on the rules of the investment policy of the enterprise.
Types of financing
Attracted investment funds have many different classifications, which are based on different criteria. Our article contains only the most common of them, however, if you decide to start investing, we strongly recommend that you study this issue in more detail by reading the necessary literature or by watching several training videos. So, investment funds can be classified depending on the object that the investment activity is aimed at:
- financial - issuing credit funds or investing in securities;
- speculative - resale of securities and non-ferrous metals;
- real - contributions to overhaul and construction.
Also, depending on the form of ownership in which money is invested, certain groups of investors are formed. Each of these groups has its own goals and prospects. This separation is in order to attract more investors to the business. For example, companies often require long-term investments in order to develop an enterprise and start making a net profit. To do this, they can issue securities in the form of shares, the dividend income of which will be made only after a few years, but at a large percentage.
State or private corporations?
Attracted financing must be returned to investors within a certain period of time, which, as a rule, depends on the investment policy of the enterprise. However, some corporations try to adhere to a certain system, which does not change from year to year. Therefore, the classification of investment enterprises also depends on the form of ownership, OJSC:
- state - providing strategically important facilities of the country;
- private - an investment in private corporations (the most risky form of all);
- foreign - investments in foreign corporations;
Based on the forms of ownership of the enterprises in which investments are made, the funds raised can also be state (loans from state banks), private (investments from large shareholders) or foreign (foreign investments). Therefore, each owner of the enterprise must first decide on the target audience to attract investment, and only then draw up an investment policy.
Attraction of investments
We hope you now understand in more detail what the borrowed funds of the organization are. It is time to talk about methods of attracting finance to your organization, because without a well-thought out investment policy, you are unlikely to be able to interest large businessmen. As a rule, the attention of shareholders and borrowers is obtained using the following methods:
- investing in the established capital of the OJSC - the shareholder receives profit from dividends, the amount of which depends on the net profit of the company;
- debt financing - a loan of funds based on a repayment agreement after a certain time with additional interest;
- bonded loans - an invested policy based on securities with fixed payments.
If one of the investors decides to invest in the fixed capital, then he will receive a share from the enterprise in which he invests. Businessmen who own a large block of shares participate in the affairs of the organization and can challenge the decisions made by its management if they run counter to the personal preferences of the co-owner.
Debt financing is a regular loan, which can be issued both by individuals and by special institutions (banks). As a rule, the loan amount and the repayment amount with interest are clearly spelled out in the contract. Payments to the investor can be made every month, season, year, or only once - in the officially established period.
Bonded loans are often confused with stocks, since bonds are also securities. However, the difference between them is that shareholders are much more at risk with their money. The bonds promise a return of finances on time, as well as income in the form of coupons that resemble dividend income.
4 steps to interest investors
Attracted funds from sources of financing play a huge role for the development of the enterprise, therefore, this issue should be given special attention, especially if you plan not only to receive a stable income, but also to develop your business in the future. Well, in order to interest an investor, it is necessary to follow certain rules that will make a person with money understand that his funds will not only return to him, but also bring good profit.
Professional entrepreneurs believe that in order to attract the attention of large investors, it is necessary to perform four consecutive steps that will make the shareholder understand that he is investing in a really promising enterprise and does not risk his own money. If you do everything right, then financing for new companies will never again be a headache for you.
Assure your partner of reliability
If you plan to interest an individual or a company that you can deal with, then you must provide some evidence for this, confirming your high competence and effectiveness of the future enterprise. This is especially true of attracted funds from the bank. Credit organizations will never give a loan to a person whose honest intentions are not sure. Therefore, they often ask a private person for a statement of income and various personal data, according to which it will be possible to calculate the non-payer in case he tries to hide.
The same goes for investing by private individuals. If you want to attract money from investors to your company, then you must present them with a competent business plan with all the calculations and details. Moreover, it should not be made up of the head, but based on real facts. For example, make a list of equipment for production in advance and print out the cost of each element. However, most of all investors are interested in their own profit, therefore, when preparing a business plan, pay special attention to this issue.
Properly convey information to the investor
As mentioned earlier, the funds raised include the money of individuals and companies that have decided to purchase the securities of a developing enterprise. The search for shareholders is best carried out in the same area that your production is focused on. In this case, the investor will feel more informed and confident that his money will make a profit. However, if it so happened that the investor does not understand the enterprise that you decided to launch, then you must correctly convey to him all the necessary information.
How to properly teach all the prospects of a developing company to a person who does not understand anything in production, but who has a large amount of money. Most professional investors recommend first to talk about the merits of the enterprise in which it is planned to make investments. Tell us about the prospects of the manufactured product and the relevance of your business at the moment. If the investor understands what is being invested in a modern and promising enterprise, then you can easily collect the amount of money that you need for development.
Conduct confident negotiations
Attracted financial resources are the basis of any business. However, you will not be able to win the trust of large investors if you cannot negotiate confidently with them. Who wants to invest in an enterprise whose owner himself is not sure of its success? Therefore, before you sit down at the negotiating table, you must first prepare for them properly. Behave as calmly as most investors are interested in only one thing - the prospect of receiving cash.
Do not be afraid to refuse the investor or pull with a response to an offer that you are not too interested. You must show your partner that he is interested in working with you much more than you are with him. He must understand that he risks losing a good opportunity to earn money by refusing to invest in your company. In order to correctly and without hesitate to present a business plan to investors, rehearse properly the speech in front of the mirror until you see a confident look in yourself.
Conclude a competent contract
If you managed to reach a mutual agreement with the investor, then the last step remains to receive the funds raised from a bank or private individual - signing the contract. It is best to use the services of a professional lawyer for this purpose to completely eliminate the likelihood of fraud. Also, such an action will give confidence to your partner that the transaction is clean and that investments will soon begin to generate stable income. Be sure that the cost of professional services will pay off in full.
As for the contract itself, it should be as clear as possible and not have any ambiguities. This is especially true of the "Terms of the transaction" clause, which should be closely monitored if you are not drafting the contract yourself, but entrust this to your partner. The contract should indicate clear amounts and forms of investment, as well as penalties for non-compliance with one or another condition of the contract. Otherwise, a series of litigation or loss of company awaits you.
Investment allocation
As soon as all the documents are signed and the money arrives at the organization’s account, the head of the company has the right to start managing the investment in any way that does not contradict the contract with the investor. Most professional entrepreneurs recommend considering the phase of distribution of funds at the stage of preparing a business plan. With the money you can build a production workshop, purchase the missing equipment, invest them in the purchase of building materials, and so on. In a word, it is necessary to manage money so that it pays off as soon as possible.
We hope our article helped you better understand what the raised funds are and how to attract the attention of investors to your company. If you still have any questions or the information provided did not seem enough to you, we recommend that you watch a short video in which a professional businessman talks about how to quickly attract investments for a developing enterprise. This video tutorial will be useful for the most part to novice entrepreneurs, although professionals will probably highlight a couple of interesting points for themselves.