would make it more difficult for them to operate, therefore limiting their expected profits. In
essence, if there is a larger capital budget available, the easier it’ll be for the company to conduct
business. It would, however, take longer to see a return on that initial investment.
When a business is trying to determine the amount of initial capital, it has to consider many
things, such as how long it would take to see a return and the projected cash flow of the business
(Curinga, n.d.). Normally, it would take a business a couple of years to see a return on the initial
investment, however, if the budgeting for the company was done poorly, they may not see a
return for a longer amount of time. Additionally, if the business doesn’t gain a net profit in a
given year, this prolongs the time it would take to see the full return.
Here is an example of a new business that has an initial investment of $25,000. In the first year,
the business saw a net profit of $8,000. The net profit would be seen as a partial return, bringing
the amount of the initial investment down to $17,000, or a 32% return. If, during the next year,
the business saw a net profit of $9,000, the amount of the initial investment would then be
dropped to $8,000, showing a 36% return. In the third year, the business gained a net profit of
$10,000. With only $8,000 left from the initial investment, the business has finally hit the break-