Attracted funds: concept, methods of attraction and distribution

2024 Author: Howard Calhoun | [email protected]. Last modified: 2023-12-17 10:16

Nowadays, investing has become one of the most popular forms of earning. Almost every person at one time thought about investing a certain amount of money in some promising project. In our article, you will learn what borrowed and borrowed funds are, what is the difference between these two concepts, what are the ways to attract funds to an organization and how to properly manage the money received. Such information will be relevant for investors and entrepreneurs.

What is funding?

In a nutshell, raised funds are unplanned income from an investor or other companies that aims to improve business performance. However, we all understand that no one will conduct financing just like that. That is why there is a special system of securities,which give investors the right to profit from the enterprise in which they have invested.

If we talk about project financing, then this is understood as a set of forms and methods of providing an enterprise necessary for the development of a competent project. That is, we are not even talking about the enterprise itself, but rather about the competent preparation of a business plan, which is necessary for business development in the future. This type of financing differs from the usual in many ways, but has the same goal - making a profit from a developing project.

That is, in simple words, the funds raised by an enterprise are a certain amount of finance that an entrepreneur has the right to spend on developing his business. However, any debts will have to be repaid in due time. The return of borrowed funds may take the form of dividends to shareholders, interest to the bank, or bond coupons. The amount of borrowed and repaid funds depends on the rules of the company's investment policy.

Types of financing

Attracted investment funds have many different classifications, which are based on different criteria. Our article lists only the most common of them, but if you decide to start investing, we strongly recommend that you study this issue in more detail by reading the necessary literature or watching a few educational videos. So, investment funds can be classified depending on the object to which the investment activity is directed:

• financial - issuing loans or investing in securities;
• speculative - resale of securities and non-ferrous metals;
• real - investments in capital repairs and construction.

Also, depending on the form of ownership in which the money is invested, certain groups of investors are formed. Each of these groups has its own goals and perspectives. This separation is in order to attract more investors to the business. For example, companies often require long-term capital investments to develop the enterprise and begin to earn a net profit. To do this, they can issue securities in the form of shares, the dividend income of which will be produced only after a few years, but at a high percentage.

Public or private corporations?

Attracted funds must necessarily be returned to investors within a certain period of time, which, as a rule, depends on the investment policy of the enterprise. However, some corporations try to adhere to a certain system that does not change from year to year. Therefore, the classification of investment enterprises also depends on the form of ownership, OJSC:

• state - providing strategically important facilities of the country;
• private - investing in private corporations (the most risky form of all);
• foreign - investment in overseas corporations;

Based on the forms of ownership of enterprises, inthat investments are made, the funds raised can also be public (loans from state banks), private (investments from large shareholders) or foreign (foreign investments). Therefore, each owner of the enterprise must first determine the target audience to attract investment, and only then draw up an investment policy.

Investment attraction

We hope that now you understand in more detail what the funds raised by the organization are. It's time to talk about methods of attracting finance to your organization, because without a well-thought-out investment policy, you are unlikely to be able to interest large businessmen. As a rule, to attract the attention of shareholders and borrowers is obtained using the following methods:

• investment in the established capital of OJSC - the shareholder receives profit from dividends, the amount of which depends on the company's net profit;
• debt financing - a loan of funds based on a repayment agreement after a certain time with additional interest;
• bond loans are an invested policy based on securities with fixed payments.

If one of the investors decides to invest in fixed capital, he will receive a share of the enterprise in which he invests. Businessmen who own a large block of shares participate in the affairs of the organization and can challenge decisions made by its management if they go againstwith the personal preferences of the co-owner.

Debt financing is an ordinary loan that can be issued both by individuals and special institutions (banks). As a rule, the loan agreement clearly states the loan amount and the repayment amount with interest. Payments to the investor can be made every month, season, year, or only once - at the officially established date.

Bond loans are often confused with stocks, since bonds are also securities. However, the difference between the two is that shareholders risk their money much more. The bonds promise a return of finances at a specified time, as well as coupon income that resembles dividend income.

4 steps to get investors interested

Raised funds from funding sources play a huge role in the development of the enterprise, so this issue should be given special attention, especially if you plan not only to receive a stable income, but also develop your business in the future. Well, in order to interest an investor, it is necessary to follow certain rules that will make a person with money understand that his funds will not only return to him, but will also bring a good profit.

Professional entrepreneurs believe that in order to attract the attention of large investors, it is necessary to follow four consecutive steps that will let the shareholder understand that he is investing in a truly promising enterprise and does not risk his own funds. If you do it right, there will be more funding for new companies.will never be a headache for you.

Convince your partner of reliability

If you plan to interest an individual or a company that you can do business with, then you must provide some evidence for this, confirming your high competence and the effectiveness of the future enterprise. This is especially true of borrowed funds from the bank. Credit organizations will never give a loan to a person whose honest intentions are not certain. Therefore, they often ask a private person for a certificate of income and various personal data, according to which it will be possible to identify a defaulter in case he tries to hide.

The same goes for private investment. If you want to attract funds from investors to your company, then you must present them with a competent business plan with all the calculations and details. Moreover, it should not be compiled from the head, but based on real facts. For example, make a list of equipment for production in advance and print out the cost of each of the items. However, investors are most interested in their own profit, so pay special attention to this issue when drawing up a business plan.

Competently convey information to the investor

As mentioned earlier, funds raised include the money of individuals and companies that have decided to purchase securities of a developing enterprise. The search for shareholders is best done in the same area for whichyour production is oriented. In this case, the investor will feel more aware and confident that his money will bring profit. However, if it so happened that the investor does not understand the enterprise that you decide to launch, then you must correctly convey all the necessary information to him.

How to properly teach all the prospects of a developing company to a person who knows nothing about production, but has a large amount of money. Most professional investors recommend that you first talk about the merits of the enterprise in which you plan to invest. Tell us about the prospects of your product and the relevance of your business at the moment. If the investor understands that he is investing in a modern and promising enterprise, then you can easily raise the amount of money that you need for development.

Negotiate confidently

Raised funds are the foundation of any business. However, you will not be able to win the trust of large investors if you cannot negotiate confidently with them. Who wants to invest in an enterprise whose owner himself is not sure of its success? Therefore, before you sit down at the negotiating table, you first need to properly prepare for them. Be as cool as possible, because most investors are only interested in one thing - the prospect of receiving cash.

Notbe afraid to refuse an investor or delay the response to an offer that you are not too interested in. You must show your partner that he is much more interested in working with you than you are with him. He must understand that he risks losing a good opportunity to earn money by refusing to invest in your enterprise. To present your business plan to investors competently and without hesitation, rehearse your speech well in front of a mirror until you see a confident look in yourself.

Conclude a competent contract

If you managed to reach a mutual agreement with the investor, then the last step remains to receive the funds raised from the bank or a private person - signing the contract. It is best to use the services of a professional lawyer for this purpose in order to completely eliminate the possibility of fraud. Also, such an action will give confidence to your partner that the transaction is clean, and investments will soon begin to bring a stable income. Be sure that the cost of professional services will pay off in full.

As for the contract itself, it should be as clear as possible and not have any ambiguities. This is especially true of the clause "Terms of the deal", which should be paid close attention if you do not draw up a contract yourself, but entrust it to your partner. The contract must specify the precise volumes and forms of investment, as well as pen alties for non-compliance with one or another condition of the contract. Otherwise, you are expectedstring of litigation or loss of company.

Investment distribution

As soon as all the documents are signed and the money is credited to the organization's account, the head of the company has the right to start managing the investments in any way that does not contradict the agreement with the investor. Most professional entrepreneurs recommend thinking through the distribution phase of funds at the stage of compiling a business plan. With the money received, you can build a production workshop, purchase the missing equipment, invest it in the purchase of building materials, and so on. In a word, it is necessary to manage money so that it pays off as soon as possible.

We hope this article has helped you better understand what raised funds are and how you should attract investors' attention to your company. If you still have some questions or the information provided seemed insufficient to you, then we recommend watching a short video in which a professional businessman tells everything about how to quickly attract investments for a developing enterprise. This video tutorial will be useful for the most part for novice entrepreneurs, although professionals will certainly highlight a couple of interesting points for themselves.