Self-financing is a common practice. We will show you how to develop your business using this method.
What is self-financing ?
As the name suggests, self-financing is financing with your own capital. The company will use its own cash flow to finance an investment. It is an advantageous solution in many respects, but it must be handled with great care.
To be able to undertake this type of action, the company must know its self-financing capacity, i.e. define the cash flow equivalent to the subtraction between income and cashable expenses. The self-financing capacity will therefore be calculated on the basis of the company's net operating result.
Self-financing offers a great deal of autonomy to the company that uses it because it retains total control over its activity, where external investors have a say, it decides freely on its investment strategy. This allows financial independence, the company does not have to pay back a loan from banks and investors, which is a loss of income for the company because there is interest.
To self-finance, it is possible to use a crowdfunding platform, which is a platform for participatory financing that calls on public funding, which is an exchange of funds between individuals via an online platform. It is also possible to benefit from state subsidies.
In simple terms, self-financing is possible if you have the financial capacity to follow. It is not necessary to have a large cash flow, it depends on the investment undertaken.
The disadvantagesThe major risk of self-financing is that it is not sufficient to maintain the business. In case of bankruptcy, the manager commits too much personal financial investment and risks personal bankruptcy. The problem is also that not all businesses have the capacity to self-finance.
If you base the financing of your company solely on self-financing, you will have difficulty building up the cash flow that is essential in times of need and difficulty. You should therefore not abuse it and not hesitate to take out a loan with banks or opt for participatory financing for larger investments.
It is a good compromise between self-financing for a short period and external help for a long-term investment. This way, you will not jeopardise the financial situation of your company.
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