When entrepreneurs of startup enterprises are successful in expanding their operations in the marketplace, they need to come up with innovative ways to raise new capital. This is the only way they can fund their activities to come up with ingenious products or services their target audience in such an environment demands. Many of these proprietors may even seriously consider converting their establishments into ‘publicly traded companies’. In such a situation, they are willing to forgo absolute control of their organizations to obtain the necessary financial resources which they cannot raise under normal conditions. There are various ways companies can raise the money they need to fund their operations from the public without borrowing from financial institutions.
Larry Polhill – How Can Companies Raise funds from the public?
Larry Polhill is a retired consultant from Arizona with 30 years of experience in the field of real estate management, corporate finance, mergers and company acquisition. At the height of his career, he held the post of ‘Director’ ‘Chief Executive Officer’, ‘Chairman of the Board’ and ‘President’ in a number of corporate enterprises. These include American Pacific Financial Corp. (‘APFC’), Capital Foods, LLC, Inventure Foods, Poore Brothers Inc. and Arrowsight, Inc. He points out the following 3 effective ways entrepreneurs who convert their establishment to companies can raise capital from the public:
- Issue of Bonds
A bond refers to a financial instrument which convey a solemn promise to pay the holder a specific sum of money at a future date. For people who are not familiar with corporate finance, it is one type of loan. A bond holder earns interest on specific dates for the money lends to a corporate enterprise for carrying on their operations in the marketplace. If at any point of time, he wishes to get back the money he lends to such a company before the maturity of the instrument, he has the right to sell it to any member of the public.
- Sale of shares and stocks
People need to be aware that individuals who accept bonds for the money they offer to companies to finance their operations in the marketplace are actually lenders of such establishments. They cannot voice their concerns on how these establishments conduct their activities in such an environment. On the other hand, those who buy the shares and stock such corporate enterprises issue via initial public offers are known as equity shareholders. They have a right to vote on which member among themselves can hold the position of ‘Director’ to manage the affairs of such an organization. This receive dividends, which is a portion of the profits such establishments make in the market, for the shares they purchase only after paying bond holders and vendors.
- Ploughing back of profits
When the top managerial personnel responsible for managing the affairs of a particular company find they have excess profits after paying bond and shareholders, they may reinvest it into the business. This enables them to have sufficient funds to finance their expansion and research activities.
Larry Polhill states that it is important for entrepreneurs who convert their organizations into public companies to find the right balance of the above 3 options to raising capital from the public. After all, they need to look into the interests of the various stakeholders of their establishments and keep happy. This helps them to run their organizations efficiently without having to seek the help of financial institutions.