Project Reporting _ Project Financing


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3. Project Reporting & Project Financing

For any business to be successful, it should have adequate supply of finances. This is especially true in case of growing countries like India. Businesses that are well-nourished economically operate efficiently and they are the ones that take advantage of the market during opportune moments. Those firms that are economically malnourished are the ones that are unfit for carrying out their business processes efficiently even in the presence of favorable market conditions. So it is important for any business to have a proper flow of finances at regular intervals. Any entrepreneur should make an in-depth analysis before opting for additional finance.

This can be done in the following manner :

Determine the purpose of fund

Selecting the right type of fund
There are many types of funds available for a business viz debt, equity, venture capital, etc. The favourites being debt and equity. Small business owners who seek financing face a fundamental choice: should they borrow funds or take new investment capital? Since debt and equity are accounted for differently, the impact of financing on earnings, cash flows and taxes shall affect the choice of financing.

Debt
Debt financing is used to fund a specific project or to meet the working capital requirements or to source expansion plans. It can be bifurcated into short term or long term depending on the purpose for which finance is required.

Equity
Equity represents an ownership stake in the business. When you finance through equity, you tend to give up a certain portion of your ownership interest in the form of shares, in exchange of cash. The investors receive remuneration in the form of dividend or a share in the annual profits. Though equity seems cheaper as compared to debt, it may prove expensive to the business owner since constant dilution of ownership interest may lead to possible loss of control..

Determining the quantum of finance
This is again an important factor that a business owner should consider before acquiring finance. The amount of finance should be determined after taking into account the facts and figures of the project. Further one should not ignore the impact of the finance on future cash flows and earnings.

Based on the above, our experts will provide a clear picture of the right quantum of finance and the right type of finance. Assuming the role of business consultants our team will now expose you to the different forms of financing available. They will help in selecting the right type of financing for the business taking into account the effect of finance on the cash flows and future profits. The following are the options for business funding :

Business Angels/ Angel Investors
These are high net worth individuals who provide finance in return of share holding in the business. They may take up an active role in the management as well.

Venture Capital
These are similar to business angels, only that finance is provided by venture capital company. The company manages funds on behalf of their investors and shareholders. For finance through this route the following are essential :

A strong business plan/ proposition.
Good potential returns.
Clear exit route for the venture capital company within a timeframe of 3-5 years. Venture capital financing is suitable for businesses looking out for a high amount of finance.

Mezzanine Finance
This is a combination of debt and equity. The lender gets an option of converting the loan into equity stake of the business. The loan in this case generally attracts a higher rate of interest as compared to loan from other financial institution.

Debt Factoring
This is an arrangement whereby the business sells its accounts receivables to the factoring company at a discount. The business gets immediate finance resulting in improved cash flow. The factor then collects the outstanding amount from the business customers.