Sources of Equity Finance for a Recreation Business

  

Date Posted: 2/11/2012 3:06:53 AM

Posted By: maxwellgoko  Membership Level: Bronze  Total Points: 45

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Equity finance is whereby money is raised for company activities by selling common or preferred stock to individual or institutional investors. In return for the money paid, shareholders receive ownership interests in the corporation. It is also known as share capital.
It serves to improve employee performance and motivation.

Sources of equity finance

There are various sources of equity finance which include the following.

1. Venture Capital

It includes the efforts of non professional investors such as friends, relatives and employees or industry colleagues. It may also include the institutional risk takers such as groups of wealthy individuals, government assisted sources or major financial institutions. Venture capitalists consider:
- Quality management
- Competitive or innovative management
- Industry growth
In case a business does not perform to their expectations, venture capitalists prefer the change in management strategy.

2. Private Investors

These are the group of people or associations that aim at increasing the a smll business credibility in the marketplace, help to obtain more capital and also provide it with sources of expertise that might otherwise be available.
Equity investment made by large corporations may take the form of;
- complete sale
- partial purchase
- A joint venture
- A licensing agreement

3. Employees
The Employees Stock Ownership Plan (ESOP) is used to as a source of Equity finance which is an investment plan. ESOP involves selling of stock in the company to the employees in order to share with them rather than with the external investors.
It offers small business , a number of tax advantages as well as the abilty to borrow money through the ESOP rather than from a bank.
It serves to improve employees' performance and motivation.

Example
British council and The Kenya Airways once sold their shares to their employees hence motivating their working spirit.

4. Government Funds

This is the money given by the government to promote the financial standards of its citizens.

Example
Through the Ministry of Sports, money donated inform of social welfare such as MYSA youth tournament, is used to promote youth talents as well as create Job opportunities to the youths.

5. Family Entrepreneurship

Family business which are financially stable may decide to promote recreation and sport business either for charity or business marketing. It must have adequate capital to cater for the expenses needed hence act as a source of equity finance.
Example
In the year 2005, the Uhuru family gave funds to provincial swimming competition to promote High school swimming galas in Central province.

6. Established Companies

Big companies may offer free gifts like clothing and sponsor recreational events such as Marathon to improve talents and solicit funds that may be used as a source of equity finance in recreation business.
Example
Safaricom, an established telecommunication company sponsors events like, Matter Heart Run and the famous safaricom live, whose aim is to promote health and also promote talents among youths which is part of the leisure and sports activities.

In conclusion Equity finance dearly depends on its sources for growth and development of various sports business. It enjoys the support of many sources hence which do not demand repay hence rapid growth of such businesses.

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