Starting-up Financing

The young businessman must find sources of money that will last until revenue begins to exceed cash outflows. He must be crea­tive in finding start-up funding. New small businesses can start with the businessman's own assets. On top of that, start-up financing may come from friends and relatives. The larger businesses can obtain funds from venture capital investors.

One of the personal assets the businessman can use to raise funds for the business is his home. The value of the home that the owner has paid for is called the owner's equity in the home. By pledging this equity, the homeowner can obtain a second mortgage or a home equity loan.

A businessman can find another source of start-up financing by a life insurance policy. Many policies build up cash surrender val­ue - the money that the policy- holder can borrow at a low interest rate.

Those who need more funds can obtain a variable rate install­ment loan. It is a personal loan with an interest rate tied to the prime rate or some other index when the index changes the rate changes in the same direction.

Some good sources of start-up funds are family members and friends. Many people can afford to lend at a low interest rate. The lender can share ownership of the business or can become a partner or shareholder in a corporation.

In some cases new companies can obtain cash from venture capital firms. These financial intermediaries specialize in funding ventures with good promise and invest in businesses which generate high profits within five years. Initially venture capital firms invest­ed in high-tech industries, but now other branches enjoy this kind of financial aid, especially those working in the health-care field. The venture capital firms provide seed money to start a new company funds to help the venture grow and gain the market and money to buy out a business.

Small Business in the USA

Not all people who start businesses dream of huge multimillion-dollar corporations with international sales. Many just want to sell things - fruits and vegetables, home appliances, clothes or computers so that they can be «their own bosses». These small busi­nesses are an important part of the economy. Many of them provide needed goods and services in city neighborhood, in small towns or in rural areas, where large companies might not provide adequate service.

Every year hundreds of thousands of Americans start their own businesses. A government agency, the Small Business Administra­tion helps with information, advice, and, sometimes, loans and grants. Many large companies with many stores started as one-store operations.

The Coca-Cola Company, which distributes its soft drinks around the world, began when a pharmacist mixed together the first Coca-Cola drink and began selling in the southern city of Atlanta, Georgia.

Blue jeans, the popular denim trousers known to teenagers around the world, were invented by a poor cloth peddler who sold his first pair to gold miners in California in the 1880s. His compa­ny, Levi Strauss, remains one of the largest clothing manufacturers in the United States.

One of the most significant changes in recent decades has been a shift away from the production of goods to the delivery of services as the dominant feature of the American economy. Where once most workers in the United States produced actual goods - from tooth­paste to tires - most Americans today work in the sector of the economy that is broadly defined as providing services. Service in­dustries include retail businesses, hotels and restaurants, federal and local government, office administration, banking and finance, and many other types of work. At the same time, as many tradition­al manufacturing enterprises in the United States decline or grow slowly, new companies spring up that are developing high technol­ogy computer, aerospace or biochemical products and services.

Business organizations in the US have been eager to spread the message of free enterprise to new generations of Americans.

Through a variety of means, they carry their message into the schools and into the television screens of the nation. One of many activities sponsored by US businesses is a nationwide program called Junior Achievement. Local business people help high-school-age «junior achievers» to organize small companies, sell stock to friends and parents, produce and market a product (key chains, perhaps, or wall decorations) and pay stockholders a divi­dend. The same young people act as company officers, sales people and production workers. The idea is to give young people a deeper appreciation to the role enterpreneurship plays in a capitalist soci­ety and to give them experience in business practices.

The list of best selling books often includes works by successful business people relating their personal formulas for getting ahead.