Newman_Financing

docx

School

Trine University *

*We aren’t endorsed by this school

Course

433

Subject

Finance

Date

Apr 3, 2024

Type

docx

Pages

Uploaded by ProfLionPerson807

1 Trine University Financing Profit and Non-profit Companies Macy Newman FIN 5063: Corporate Finance Dr. Dana Leland 17 September 2023 There are many possibilities when it comes to the world of finance. Whether you are a profit company or a non-profit company you will find yourself needing to tap into what finance

2 has to offer your organization. In this paper we will walk through the different possibilities of finance in these types of companies and what this means for their investments and their future. along with how organizations use Time Value of Money to their benefit. This will then be demonstrated to give a complete understanding of the topic. To start we will go over the basics of financing, which can be defined as, “…the process of providing funds for business activities, making purchases, or investing” (Hayes). To look at it different, it can be understood as finding a way use the time value of money (TVM) to use money that you are expecting to get into projects that you will being today. Financing also uses the fact that some people across the globe have money they are willing to put into work thus generating returns and others give money into an organization expecting to get a return. There are two types of financing: equity financing and debt financing. There are two main differences to these categories. When working with equity financing there is no pressure on the company to repay the money that was given, and debt financing is known for being cheaper regarding tax breaks but can create debt that often leads to default and credit risk. When financing a profit company, you have 4 main options. The first would be self- funding, this is where projects you are completing are at a reasonable price for you to pay for them out of pocket. This comes with risks of the business’s owner falling into long-term debt. The next possibility would be crowdfunding. You would use crowd funding to finance your company if you know you will have or you have a large fan base that will back you. “Crowdfunding platforms, such as Kickstarter, Indiegogo, and Patreon enable entrepreneurs to pitch their products and request financial backing” (Cote). The use of external websites is

3 commonly used. The third option for financing a profit company would be to take out a small business loan. When deciding if this option is best for you, it is important to look at and understand the interest rates and terms and conditions of the loan, to ensure it fits your financial goals. The fourth option would be to raise venture capital from investors, this is done through reaching out to potential investors and explaining your business plan, value proposition, and financial projections. This is because they are giving you an investment but they also get a valuable share of your company. To understand how this impacts a company we will look at Starbucks total liabilities as of June 20233. The total liabilities added up to a total of $37.075B meaning they own that much back to loans or investments (FIVE). For non-profit organizations we will briefly talk about 5 different financing possibilities. The first would be SBA Loans and Grants, which are, “government-backed sources of financing that can help nonprofits fund their work” (Nonprofit Financing Options). These can get picky with organizations having to meet specific criteria. The next option would be talking to community development financial institutions. These loans are more accessible to the non-profit companies, but they tend to be in smaller amounts with high interest rates. Third would be talking to traditional business lenders, this would be places like banks and credit unions. This would work the same as for a profit company. Next would-be corporate giving programs, this is where non-profits partner with businesses and can benefit from those corporations’ resources and financial support. Lastly would be business credit cards. “Business credit cards can help nonprofits pay for daily expenses, cover the costs of fundraising events and otherwise manage operations” (Nonprofit Financing Options). Interest charges would be the main risk for this

Your preview ends here

Eager to read complete document? Join bartleby learn and gain access to the full version

Access to all documents
Unlimited textbook solutions
24/7 expert homework help

4 possibility. Whether the organization is a for profit or a non-profit company this will affect their investing and future by allowing them to get lump sums of money and determining if the risks are worth the reward. You can understand how the company finances by looking into their financial statements under liabilities. This is where you find how much they own outside factors. Take The American National Red Cross for example, their currently liabilities are $526,790 and their noncurrent liabilities are $645,102 totaling up to $1,171,892 in total liabilities (THE AMERICAN NATIONAL RED CROSS). This means they owe that much to different types of investments.

5 Work Cited Cote, C. (2020, August 4). How to Finance a Business: 4 Options To Consider | HBS Online . Business Insights - Blog. https://online.hbs.edu/blog/post/how-to-finance-a-business Hayes, A. (2019). Financing: What It Means and Why It Matters. Investopedia. https://www.investopedia.com/terms/f/financing.asp Nonprofit Financing Options: 8 Ways To Secure Funds – Forbes Advisor . (n.d.). Www.forbes.com. https://www.forbes.com/advisor/business-loans/nonprofit-small- business-loans/ Starbucks Total Liabilities 2006-2019 | SBUX . (n.d.). Www.macrotrends.net. https://www.macrotrends.net/stocks/charts/SBUX/starbucks/total-liabilities THE AMERICAN NATIONAL RED CROSS Consolidated Financial Statements) (With Independent Auditors’ Report Thereon) . (2022). https://www.redcross.org/content/dam/redcross/about-us/publications/2022- publications/FY2022_Red_Cross_Financial_Statement_FINAL.pdf