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Capital
Why companies need
financing?
► For start-ups or growing companies, as well as
those
facing a major change, financing is one of the key
business issues.
► � New capital is needed e.g. for
1. Financing of product development
2. Financing of market penetration
3. Financing of investments
4. Working capital financing to secure operative
continuity
5. Maintaining liquidity to be able to cover daily
During their start-up, growth and expansion stages,
the companies are often faced with the fact that the
incoming cash flow is not sufficient for the
operations. The company's cumulative cash flow is
negative. The time needed for turning the company's
cash flow positive varies considerably
� A long product development stage and slow
market
penetration prolong the negative cash flow period.
The company can have a negative cash flow for
years, a situation that is typical in high-tech
branches.
Operative
financing
To bridge the deficit in operative financing, the
company has the following choice of available
measures:
1. to ensure that the liquidity planning has been
appropriate
2. to make the clients pay their invoices on time by
offering, for example, discounts for rapid
payments
3. to intensify the collection of sales receivables
4. to delay the payments to suppliers within their
terms of payment
5. to maximize the sales margins to cut indirect
costs
External financing