A Short Primer on Business Financing

Basic Financing Principles

Unlike not-for-profit organizations, for-profit businesses are typically unable to rely upon government funding or private grant sources to meet their cash requirements. Therefore, they generally must raise capital by either selling equity or borrowing debt in order to finance their activities. A few of the major uses of cash by for-profit businesses are described below:

• Businesses must incur start-up expenses, such as for research and development, in order to first make the product or service ready for sale to customers.

• For ongoing operations, the cash expenses to run the business and produce the product or deliver the service must generally be paid before the cash income from sale of the product or service will be received.

• When the business is growing, the need for cash is often the greatest because the investment necessary to achieve growth usually occurs before the generation of revenue from new sales. Read more

Joint Venture Tips

While it is natural to negotiate a JV thinking primarily of the “upside” if things go well, many of the legal terms will focus on how to terminate the JV and what happens on termination. Young couples getting married often choose to forego a prenuptial agreement. New business partners rarely should make that same choice.

Here are a few questions to consider:

1. What will your business want to do after the JV terminates, should that occur? Will you want to continue the JV business by yourself or with a new partner, or just continue your part of the business alone?
2. How big an investment are you making during the JV? How about the other side?
3. How integrated will the partners’ respective products and services become? Will they remain severable, or become permanently intertwined?
4. How high will the transition costs be to stay in business after the JV terminates?
5. Will you have the resources to invest in rebuilding lost business, or will you need a new investment partner?
6. Is the JV likely to fully penetrate the market, or is the market so large that there will be plenty of room for growth following termination?

If you answer these questions and others that arise out of your specific circumstances, it will help you decide (a) how “easy” or “hard” to make the trigger (on both sides) to termination, (b) what steps you need to take throughout the JV term to position yourself in a positive way for any termination, and (c) what rights you should have that emerge on termination.