Custom «Funding a Business Venture» Essay Paper Sample

Funding a Business Venture

An investment banker may be an individual or an institution which acts as a sponsor or an agent for firms who issues securities. Most investment bankers carry out broker or dealer processes in the sense that they act as intermediaries for individual and corporate ventures. They also help in providing advisory services for business entities who seek their expertise (Jennings, 2005).

Stock market can provide funds for new products through selling of a firm's shares to investors. Since the business is an unquoted, it has to offer new shares in a stock market once it is incorporated. The shares will have to be offered for sale for the firm to raise funds to expand business lines and to launch new products. The advantage of this source of funding is that the business may choose to retain dividends as a way raising more funds. Therefore, shareholders will get mores shares instead of dividends for the next financial period (Jennings, 2005).

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Financial management involves planning and controlling a firm's monetary endowment in order to efficiently allocate such resources to business activities and processes. Key objective of financial management is to source cash and estimate returns on initial investment in new products considering risks that the business is taking and the resources to be invested. Financial planning, control and decision making are the main elements to this concept (Gallagher and Andrew, 2002).

Risk financing is concerned with making available of funds to take care of the financial outcome of unanticipated losses encountered by a firm. Businesses operate with uncertainties and quantifying them is basically risk financing because it calls for necessary adjustments to be identified and implemented. This lowers the cost in case of a risk (Jennings, 2005).

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The preferred source of funding for the new business is to sell shares in the stock market. This is most suitable because dividends are only to be paid to shareholders once the business has made profit and paid as a share of the profits realized. The dividends also can be retained by issuing more shares to existing shareholders. This will help in the growth of the business. The only problem with this kind of source of funding is that shares are less attractive because the business is pretty new. The dividend yield has been high in order to be considered an attractive venture by a potential investor.

Another alternative is to borrow a loan from an investment banker. This will come in handy in terms of funding as well providing advice to the business in packaging new product or products. The banker will help provide brokerage services for the business as it expands.

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