Monday, 27 November 2017

Steps to Finding and Managing Capital - Part 1

This is a paper presented at the Valedictory Session/Entrepreneurial Workshop for the Executive and Principal Officers of the 25 Local Government Council of Delta State - 18th and 19th October, 2017

It is fair to say that at the center of any business enterprise is finding and utilization of capital. In classical econonic theory, there are four factors of production which are:
  • Land
  • Entrepreneur
  • Capital
  • Labour
In this list, capital is that aspect that bonds all three together. In many instances, it equates to cash but often, it means much more than that. It is the ability to mobilize enough capital to start a business that could make the difference between quick successes or a stunted growth. In fact, it could even mean the difference between commencing and not commencing a business at all.

In this article,  we would explore the various sources of capital that you can leverage on. The principle to bear in mind is that capital should strictly be treated as capital and not profit. Capital is meant to be a facilitator, an enabler - a means to an end and not the end itself.

In simple terms, capital should be spent strictly for business, not for pleasure or any other thing. One this principle is understood, then it will help you answer the next question

What Capital Do I Need
The volume or size of capital is not fixed, but dependent on two basic questions:
  1. What kind of business do I want to engage in?
  2. What facilities are available
1. What Kind of Business
In answering the first question, a background study of the different businesses or enterprise opportunities must have been carried out. In some Instances, this information can be gotten informally, especially if one is going into a well-known business direction (even then, effort must be made to obtain certain empirical specifics as to fund requirements outlays). Since no two businesses are exactly the same as they operate under different variables.
In other instances, a formal study requiring a professional input can be carried out. This is called feasibility study. Feasibility studies are meant to establish the capital needs of the business and its expectation or return capital.

What Facilities are Available
The funds available to be utilized as capital are generally categorized into two broad categories.
  • Internal Sources
  • External Source
We would discuss these two

Internal Sources: As the name implies, these are funds that can be sourced from within. They include personal savings, funds from family members, stocks and equities, inheritances and heirlooms. Monies drawn from these are generally uncollateralized and less stringent in mobilization and utilization. The monitoring and control processes to access their efficient utilization are less stressful and less cumbersome.

External Sources: These are funds from outside your personal cycle. A key feature of externally sourced funds is that they are formal. This requires formal agreement between the lender and the borrower. So in some instances, even family members can by the conditions attached to the release of these funds become external or formal sources of capital. A formal capital source can be in form of loans, grants, endowments or charitable advances.

We would now outline and discuss these sources of funds in the next part.
Sources of Capital