• How much

is required?

• When and how

the finance is needed for?

• What

(if any) can be provided?

• Whether the

is prepared to give up some

(ownership) of the start-up in return for investment?

As mentioned earlier, most start-ups make use of the personal financial arrangements of the

. This can be personal savings or other

that have been accumulated. It can be personal

which are made available to the business. It can also simply be the found working for

.

Cash flow describes the

of cash into and

of a business.

When you look at the

of any business, you soon realize that cash flow is a

and often unpredictable part of business life. It's consistently moving.

Cash inflows is movements of cash

a business where as cash outflows is the

of cash out of the business cash flows into the

account when customers pay for their

, when a loan is received from the bank,

is received or when assets are

whereas cash flows out of the bank account when

are paid, employee wages and salaries are paid; interest is

to the bank and so on.

The difference between the cash inflows and cash outflows during a specific period (e.g. a week, month) is known as the "

". Net cash is commonly used in

a company's cash

More generally, net cash can refer to the amount of cash remaining

a

has been completed and all charges and

related to the transaction have been subtracted.

The challenge for any business (particularly a start-up) is to ensure that it

to ensure that it does not run

.

Personal sources, retained

and share capital invested by the

are the main

sources of finance for a start-up.

Personal sources are the most

sources of finance for a start-up and are explored in share capital invested by the founder.

Retained profits is the cash that is generated by the

when it trades

. It’s another important source of finance for any business,

or small.

They can generate cash from the moment

has begun.

. Another internal source of finance is

– invested by the founder. The founding

(/s) may decide to

in the share capital of a company, founded for the purpose of forming the start-up. This is a

method of financing a start-up. The founder provides all the share capital of the company, retaining

% control over the business. The entrepreneur may be using a variety of personal sources to invest in the

. Once the investment has been made, it is the

that owns the money provided.

The shareholder obtains a return on this investment through

(payments out of profits) and/or the

of the business once it's sold eventually.

Loan capital can take several forms, but the most common are a

bank

loan

or bank overdraft. A bank loan is where the bank stating the

fixed

period over which the loan is provided (e.g. 5 years), the rate of

interest

and the timing and amount of

repayments

on a

long

term basis. Some

security for the loan will usually have to be provided, although this normally comes in the form of personal

guarantees

provided by the entrepreneur. Bank loans are good for

financing

investment in fixed

assets

interest

that a bank overdraft. However, they don't provide much

flexibility

. On the other hand, a bank overrdraft is a more short-term kind of

finance

which is actually a loan facility – the bank lets the business "owe it money" when the bank balance goes below

zero

, in return for charging a high rate of interest. As a result, an

overdraft

is a flexible source of finance, in the sense that it is only used when needed.Handling seasonal

fluctuations

in cash flow or when the business runs into

short

-term cash flow problems (e.g. a major customer fails to pay on time) are made easier (to

deal

with). Two further loan-related sources of finance include

share

capital from outside investors which usually consists of the friends and family of the

entrepreneur

. The friends/family may be prepared to

invest

substantial amounts for a longer period of time; they may not want to get too involved in the day-to-day operation of the business. Both of these are

positives

for the entrepreneur. However, there are pitfalls. Almost inevitably,

tensions

develop with family and friends as fellow shareholders. Business

angels

are the final main kind of external

investor

in a start-up company. Business angels are

professional

investors who typically invest £10k - £

750

k. They prefer to invest in businesses with high

growth

prospects. Angels tend to have made their money by setting up and selling their own

business

(therefore proven entrepreneurial expertise). In addition to their money, Angels often make their own skills,

experience

and contacts available to the company. This can be a significant advantage to a start-up, although the entrepreneur needs to accept a loss of

control

over the business.

Venture

capital is a less important source of finance for start-ups and is a specific kind of share

investment

that is made by funds managed by

professional

investors. Venture capitalists rarely invest in genuine start-ups or

small

businesses as they prefer to invest in businesses which have established themselves. Another term you may here is "private

equity

" – this is just another term for venture

capital

. A start-up is much more likely to receive investment from a

business

angel

than a

venture

capitalist

.

A business has many different

from paying for

materials through to paying the rent or the heating

. By careful classification of these costs a business can

its

and make better-informed

.