Company Stage

As a company moves through its life cycle, the sources it uses for capital change. In the early formation phase, capital is generally raised through sources independent of the operations of the organization. Capital is acquired chiefly through the personal resources of the owner or his immediate relations, and investor-related debt. Any cash generated from operations is generally used for setup costs including purchases of inventory and equipment. This initial phase calls for the use of techniques that maximizeor “stretch”- current funds, such as seeking longer credit terms from suppliers, procuring advances from customers, subcontracting, and leasing equipment, among other methods.

As the company grows, it begins to generate capital through its operations, and as it establishes a track record of profitability, it will have more opportunities to obtain outside financing. Capital needed for expansion may be available from external sources, including a greater emphasis on debt financing through commercial lenders or equity financing through private investors and firms. As the company matures, operations generally provide cash. Mature companies are in a better position to be able to afford the costs of further expansion through combinations of debt and equity financing, such as private placements or initial public offerings (IPOs).

“Mature companies are in a better position to be able to afford the costs of further expansion through combinations of debt and equity financing…”

Company Stage: Start up

During the start-up phase, among the most important sources are personal assets accessible to the owner. The emphasis is on external sources since the business is not yet generating positive cash flow. In the search for early-stage capital, loan opportunities are usually limited by the need for collateral and personal guarantees, which serve as protection to the commercial lender. It is unlikely for most start-up companies to obtain equity investments, in part due to the high risk involved in this stage of investment. Factors such as a well-developed business plan, or prior experience in the new business’s industry, improve one’s chances of acquiring start-up or early-stage funding

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Company Stage: Growth – Internal Financing

We do recognize that there are several stages a business goes through during its life span however for funding purposes under normal circumstances a company will be looking for funding to start or expand their offerings. During the growth stage funding includes sources that may have not been available during start up. One such source is internal funding. Internal sources typically include various money and inventory management techniques that a company can employee to free cash that they can invest to increase capacity, add new offerings, hire more people, open a new location and the list goes on.

Company Stage: Growth – External financing

As the business begins to grow, external financing sources should become more available, and debt or equity may be used to satisfy financing needs. The mix of financing sources varies depending on the growth stage of the business. During the start-up stage, entrepreneurs most often rely on “family and friends” and internal debt financing, but as the business becomes more established, it develops a credit history and outside debt financing becomes more available. High-growth companies- those growing very quickly- are attractive to equity financers. Equity financing providers may be companies, funds, or individuals, but they all seek to invest in private companies in which they can anticipate a substantial rate of return for their investment. Debt financing is more varied, both in the types of entities that provide such financing and in the types of financing available.

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