How businesses get their money

All businesses need money to function. They need to pay their staff and their taxes, buy equipment and sometimes buildings. If they make products they'll also need to buy raw materials.

Small business owners often raise money from their own savings, borrow money against their own homes, or borrow from the bank.

Larger organisations also borrow from banks and other financial institutions. In addition they may sell shares in their company. Anyone who buys shares quite literally buys a share of the company and becomes a part owner.

Shares may be publicly listed on a stock exchange such as the NZX, NASDAQ, or London Stock Exchange, where they are traded by buyers and sellers. There are two main ways to buy shares. One is to buy them directly from the business when they are first issued. The other way is to buy them from people selling their shares on the stock exchange. Usually you would trade through a stock broker or online trading account.

Companies have other ways of raising money from the public and existing share holders. They may issue "debt securities", such as bonds, as a way of raising money. By doing this they are borrowing money from the people who buy the bonds. They may also offer "rights issues" to existing shareholders. Rights issues usually pay an annual or bi-annual percentage of the money invested as a dividend and at some point in the future the rights may convert to shares.

Summary

• Businesses need money to function.
• Many need to raise funds.
• They may sell shares in their company to investors or raise funds by selling bonds.