Defining the Financial Structure is the first step towards defining the source of financing.

Having your business up and running is a big step but it’s only the beginning. To keep it running you will most likely need financing and you should decide from start how would you like your business to grow, what will the source of the financing be.

There are several sources of financing: one’s own resources, suppliers, banks and investors.

One must use any of those sources for many needs but every source of financing has a particular type of uses for which they’re specially good.

A rule of thumb though is:

• Long term projects should be financed with long term sources (long term loans or equity)
• Short term needs are better financed with short term sources (suppliers or revolving credit facilities).

Having that in mind, the next step is deciding how much funding from every source is the desirable combination.

Banking loans are great for working capital needs and capital expenditures (buying an office, machinery and equipment).

Equity is a great source of financing for long term growth. Nowadays deciding to increase equity not only includes one’s own resources or family’s and friends’s, it also includes options such as crowdfunding.

Crowdfunding is a good source of equity for growth, for when you have a working business model and want to escalate it. Investors will be willing to invest in your business if:

• They see value in what you do.
• They foresee the additional risk they take will be rewarded with additional revenue.

What financial structure and source of financing is good for your business’s needs?