Question

Funding a small business is a critical function of small business management. How do the capital requirements vary by the stage a business is in its lifecycle? Which sources of funding are most appropriate for each stage? Explain your reasoning

Answer 1

In a business life cycle there are following stages -
1.Development /seed stage - In this stage that requirement of capital is maximum. This is because whenever a new business initiates, there is huge amount of capital which is required to cope up with the operating cost of the business. In this stage the revenues will be very low as the company has just started. But gradually over a period of time profits start coming in.
The source of funding which are appropriate in this stage are crowd funding, Angel investors, startup incubators, startup accelerators government grants etc
2. Growth - In stage the business has already gone through the the development stage. It has tasted success and is ready to expand for further growth. The capital required is mainly to manage day to day operating expenses.
The source of funding which can be appropriate in this stage a bank loans, private investors. As private investors are always looking for ways to increase hence they are the best option in in growth stage. Warren Buffett is one of the most successful investors who always looks for business opportunities. He always invest in those business which are in the growth stage and having great potential for expansion. Companies can reach out to him and other investors like him.
3.Maturity - In this stage the business is already generating profits and day by day new customers are adding. The only issue is to look into operating expenses and find new business opportunities. The capital required in this stage is not for managing the business but for expansion. If the company wishes to expand into other territories then it requires fund for expansion.
The source of funding in this stage can be financial corporations and government banks. This is because financial corporations and government banks easily give loans for the companies which are having good profit. Government banks look for companies which are highly stable and financial corporations also provide loan easily for them for expansion.
4.Decline- In this stage the company does not require any capital. Rather it has to you slowly remove the money invested. As the profit reduces and loss start occurring. This is the time when business should look for other business opportunities.
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