Many factors influence how businesses are funded. Think about
the factors involved in each of the situations below. Where can
your firm find financing?
- Your company needs a new copy machine quickly. The high volume,
multi-featured model you want costs $3,000, but your small business
doesn’t have that much cash on hand right now and doesn’t want to
borrow at this time.
- Your firm has a large payment that needs to be made by next
week. The company doesn’t have the cash available at this time. You
already have large outstanding loans, so you don’t want to go to
the bank. Your stockholders don’t want you to sell more stock
because it would dilute their control. You can’t sell bonds by next
week. Your inventory is small; but, your accounts receivable are
large. Your firm sells everything on a 30-day open account, and
most of your customers pay on time.
- You own a dry cleaning store near an apartment complex. The
store attracts a growing number of young patrons who find it
convenient to drop off their garments on the way back and forth to
work. In fact, business is doing so well, your tiny store is
starting to feel cramped. Your next-door neighbor, a donut shop,
has just offered to sell you their business and real estate for
$100,000. You believe that the location and expansion potential are
great, but you don’t have the cash at the moment.