How the Need For Capital Arises

There is more than one way to skin a cat. You'd better remember this old adage when your business needs more inventory, personnel, and facilities. As your business grows, so does your need for more and more capital. Remember there is more than one way and more than one place to raise the money you need.

Causes of Additional Capital Needs

There are many factors that can create a need for additional capital. Some of the more common are as follows:

Sales growth requires inventories to be built to support the higher sales level.

Sales growth creates a larger volume of accounts receivable

Growth requires the business to carry larger cash balances in order to meet its current obligations to employees, trade creditors, and others.

Expansion opportunities such as a decision to open a new branch, add a new product, or increase capacity.

Cost savings opportunities such as equipment purchases that will lower production costs or reduce operating expenses.

Opportunities to realize substantial savings by taking advantage of quantity discounts on purchases for inventory, or building inventories prior to a supplier's price increase

Seasonal factors, where inventories must be built before the selling season begins and receivables may not be collected until 30 to 60 days after the selling season ends.

Current repayment of obligations or debts may require more cash than is immediately available.

Local or national economic conditions which cause sales and profit to decline temporarily.

Economic difficulties of customers that can cause them to pay more slowly than expected.

Failure to retain sufficient earnings in the business.

Inattention to asset management may have allowed inventories or accounts receivable to get out of hand.

Combination

Frequently, the cause cannot be entirely attributed to any one of these factors, but results from a combination. For example, a growing, apparently successful business may find that it does not have sufficient cash on hand to meet a current debt installment or to expand to a new location  because customers have been slow in paying.

Short- and Long-Term Capital

Capital needs can be classified as either short- or long­-term. Short-term needs are generally those of less than one year. Long-term needs are those of more than one year.

Short-term Financing

Short-term financing is most common for assets that turn over quickly such as accounts receivable or inventories. Seasonal businesses that must build inventories in anticipation of selling requirements and will not collect receivables until after the selling season often need short-term financing for the interim. Contractors with substantial work-in-process inventories often need short-term financing until payment is received. Wholesalers and manufacturers with a major portion of their assets tied up in inventories and/or receivables also require short-term financing in anticipation of payments from customers.

Long-term Financing

Long-term financing is more often associated with the need for fixed assets such as property, plant, and equipment where the assets will be used in the business for several years. It is also a practical alternative in many situations where short-term financing requirements recur on a regular basis.

Recurring Needs

A series of short-term needs could often be more realistically viewed as a long-term need. The  addition of long-term should eliminate the short-term needs and the crises that could occur if capital were not available to meet a short-term need.

Steady Growth

Whenever the need for additional capital grows continually without any significant pattern, as in the case of a company with steady sales and profit from year to year, long-term financing is probably more appropriate.

Whether you manage a factory, wholesale outlet, retail store, Service store, or are a contractor, you will need to sell. No matter
how good your product is, regardless of what customers think of it, you need to sell to survive.

Direct selling methods are through personal sales efforts, Advertising and, for many companies, display - like the packaging and
styling of this item itself - in kitchens, at the institution, or even both. Establishing a fantastic reputation with the general
public through courtesy and distinctive services is an indirect process of selling. While the latter shouldn't be disregarded,
this short discussion will be confined to direct marketing methods.

To establish your business on a firm footing requires a great deal Of aggressive personal selling. You may have established
competition to overcome. Or, if your idea is new with little or no competition, you've got the extra problem of convincing people
of the value of this new idea. Private selling work is almost always essential to achieve this. If you aren't a good salesperson,
seek a worker or asociate who's.

Another way to create sales is by advertising. This may be done Through newspapers, shopping newspapers, the yellow pages section
of the telephone directory, along with other printed periodicals; radio and television; handbills, and direct mail. The media you
choose, as well as the message and style of presentation, depends upon the specific customers you wish to attain. Plan and prepare
advertisements with care or it'll be ineffective. Most media are going to have the ability to describe the features of their
viewers (readers, listeners, etc.). Since your initial planning described the characteristics of your potential customers, you
want to match these features with the media crowd. If you're selling expensive jewelry, then don't advertise in high school
papers. If you fix bicycles, you likely need to.

Advertising can be quite expensive. It Is a Good Idea to put a limitation upon An amount to invest, then remain within that limit.
To help you in determining how much to invest, study the working ratios of similar businesses. Media advertising salespeople will
help you plan and also prepare advertisements for you. Make sure you tell them your budget limitations.

A third Way of sparking sales is successful displays both in Your place of company and out it. If you've had no prior expertise in
display work, you are going to want to study the topic or turn the job over to someone else. Observe displays of different
companies and read books, trade magazines, and the literature provided by equipment manufacturers. It could be wise to hire a
display expert for your opening display and unique events, or you could obtain the help of one on a part-time foundation. Much
depends on your kind of business and what it requires.

The appropriate amount and types of selling effort to utilize vary from business to business and from owner to owner. Some
companies prosper with low-key revenue efforts. Others, such as the used-car lots, thrive on competitive, hoop-la promotions. In
any event, the importance of successful selling can't be over-emphasized.

On the other hand, do not Eliminate sight of your major objective - to Make a profit. Anyone can produce a large sales volume
selling dollar bills for ninety bucks. But that won't last long. So keep control of your costs, and cost your product carefully.

Record Keeping. 1 essential element of company management is the keeping of adequate records. Study after study shows that many
supervisor failures could be attributed to inadequate records or the owner's failure to make use of what information was
accessible to him. Without records, the businessperson can't see in advance which way the company is going. Up-to-date records may
predict impending tragedy, forewarning one to take action to avoid it. While extra work must keep an adequate set of records, you
will be more than repaid for the effort and cost.

If you are not prepared to maintain adequate records - or have someone Keep them for you - you shouldn't attempt and operate a
small business. At a minimum, records are needed to substantiate:

1. Your returns under taxation laws, such as income tax and social Security laws;

2. Your request for credit from equipment makers or a loan From a lender;

3. Your claims about the business, in case you would like to sell it.

However, most important, you need them to run your business successfully And to raise your profits. Having a decent. Yet easy,
bookkeeping system you can answer such queries as:

How much business am I doing? What are my expenses? Which appear to be too large? What is my gross Profit margin? My net gain? How
much am I collecting in my charge enterprise? What is the condition of my working capital? How much money do I have available? How
much in the bank? How much do I owe my Suppliers? What is my net worth? That is, What's the worth of my possession of The
business? What are the tendencies in my Receipts, expenses, profits, and net value? Is my financial position improving Or growing
worse? How do my assets compare with what I owe? What's the Percent of return on my investment? How many cents out of every dollar
of Sales are net profit? Answer these and other questions by preparing and studying balance sheets and profit-and-loss statements.
To do this, it is Important that you record information regarding transactions as they occur. Maintain This information in a
detailed and orderly manner and you will have the ability to answer the above questions. You'll Also have the answers to these
other vital questions About your business as: What services or products do my customers like best? Next best? Not at all? Do I
take the merchandise most frequently requested? Am I Qualified to render the professional services they need most? How many of my
charge Clients are slow payers? Shall I change to cash only, or use a credit card Charge program?

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