Financial Accounting Blog

Wednesday, November 26, 2003

The United States Small Business Administration has a good article, Financing Basics, that explains the equity versus debt financing for small businesses. The article contains a list of questions that will help businesses determine the best means of financing and how to the debt-to-equity ratio results can help them in their decision making.

Here's a short exerpt from the article emphasizing the importance in understanding a businesses financing options:

While poor management is cited most frequently as the reason businesses fail, inadequate or ill-timed financing is a close second. Whether you're starting a business or expanding one, sufficient ready capital is essential. But it is not enough to simply have sufficient financing; knowledge and planning are required to manage it well. These qualities ensure that entrepreneurs avoid common mistakes like securing the wrong type of financing, miscalculating the amount required, or underestimating the cost of borrowing money.