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MGT601 - SME Management - Lecture Handout 18
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PROBLEMS FACED BY NEWLY ESTABLISHED COMPANY
This lecture will continue with the previous lecture problem and then chapter deals with the teething problem that a newly established company faces.
Cash Flow Analysis
If the projected sales associated financial requirements and available financial resources are known, the anticipated cash flow can easily be determined.
Cash Flow (Projected)
| Cash Flow and Financial Transactions | Period 1 | Period 2 |
| 1) Cash flow | ||
| Initial expense | ||
| Fixed investment | ||
| Operating expense | ||
| Total cash outflow | ||
| 2) Cash inflow | ||
| Cash sales | ||
| Account receivables | ||
| Total operating inflow | ||
| 3) Net cash flow (2-1) | ||
| 4) Desired minimum cash balance | ||
| 5) Total amount of funds required [3 (if negative + 4)] |
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SOURCES OF CAPITAL
PRIVATE PLACEMENT
A final source of funds is private placement with investors who may be family and friends or wealthy individuals.
Type of Investors
- An investor usually takes an equity position and can influence the nature of the business to an extent.
- The investors’ degree of involvement is important for the entrepreneur to consider.
- Some investors want to be actively involved in the business, and others are more passive.
Private Offerings
- Public offerings involve much time and expense.
- Registering the securities with the Securities and Exchange Commission (SEC) requires a number of reporting procedures once the firm has gone public.
- This public process was established to protect unsophisticated investors.
- A private offering is faster and less costly than other funding.
- These sophisticated investors still need access to material information about the company.
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