Chap015bmgtpalomaransw - Chapter 15 Small Business Finance...

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Chapter 15 - Small Business Finance: Using Equity, Debts and Gifts CHAPTER 15: SMALL BUSINESS FINANCE: USING EQUITY, DEBTS AND GIFTS Chapter Summary Continuing with the discussion in the last chapter, this chapter discusses sources and types of capital financing, financial risk and needs throughout each stage of business. Learning Objectives After studying this chapter, the student should be able to: 1. Know the three types of capital financing and their costs and trade-offs. 2. Understand the characteristics of a business that determines its ability to raise capital. 3. Know how to choose the right type of financing for your business. 4. Understand the differing needs for financial management at each stage of business life. Focus on Small Business: Dr. Mary Pat Moyer and INCELL Corporation Mary Pat Moyer has used both traditional and non-traditional sources of money to finance INCELL, a successful biotech company in San Antonio, TX. The case describes many of the things that INCELL had tried to get into the business and is trying to meet its current growth needs. Focus on Small Business: Discussion Questions 1. What did Dr. Moyer mean when she said “INCELL may be the only biotech in the world to be bootstrapped.” Bootstrapping is financing a business solely through its own internally generated cash flows. It is extremely difficult to do successfully, and industries that require huge capital inputs, such as banking, gaming (gambling casinos), and pharmaceuticals rarely attempt to bootstrap. 2. In what ways does financial management for small startup businesses different from that of academic organizations and businesses? a. Startup businesses must concentrate on cash flows, academic organizations usually focus on obtaining grants and endowments. b. Established businesses usually focus on profits and growth. Startup businesses focus on having enough money to pay today's bills. Profits and growth are often distant dreams. 15-1
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Chapter 15 - Small Business Finance: Using Equity, Debts and Gifts 3. What problems are created by “too much success?” a. “Too much success” can lead to ever-increasing needs for additional cash. The time required to complete the cash to cash cycle can put a business into the growth trap of having increasing business, but decreasing financial ability to meet production requirements. b. “Too much success” can cause managers to become "stretched thin" having too much to do, and too little time to do it. c. “Too much success” can cause the business to require additional property, plant, and equipment, which can easily exceed the financing ability of a small business. 4. What did Dr. Moyer mean when she said “…we've not raised a penny, at least not at a price we're willing to pay!”?
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