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Financial Accounting

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Financial Accounting
Scenario 1
Sources of Finance There are a number of equity sources of finance. They include help from family and friends, public stock sale, venture capital, and funds from angel investors. A businessperson can get money from family to start up a business. The advantage with obtaining funds from family and friends is that they may be lenient with repayment terms (Leach and Ronald 34). They might also offer low interest rates and longer repayment duration. The problem is friends and family members might not have the amount of money one needs. This can make it hard for one to raise the needed capital. A businessperson can raise money from public stock offerings which involves selling shares of the stock of the business. This means that one has to register the business as a public company. Selling of equity shares is a good way of raising capital because it does not require the business to repay the money to the public investors. The disadvantage, however, is that this process requires disclosure of some information that might be helpful to competitors. The owner also losses control of the business, the privacy of the business, and will also be under pressure to perform. Venture capital is capital raised from venture companies. Venture capital companies invest money into businesses for profit. These companies normally put money into businesses that have a high growth potential. Because of the risk involved, venture companies normally look for competent management, a growing industry, and a competitive edge of a company. Venture companies also do not retain their ownership in a company for long (Stickney 21). After sometime, they look for an exit strategy to let the business to run on its own. The disadvantage with venture capital is that the owner loses control of the business because of the involvement of

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