Chapter 11 Flashcards
Debt and other Forms of Financing:
-Need to know the 4 basic ways of valuing your company, which are based on capitalization value, present value of future cash flows, what it will be based on it’s assets, and market comparable valuation in order to know how much funding you need. Opportnunity and risk are left out
Finance continously
Factors within and without your control can impact your cash need very quickly so it is important to collect cash and prepare for the most likely situation while keeping extra cash for the worst situation. The three rules of cash are: cash now is better than cash later, never run out of cash and more cash is better than less cash.
Align and Sources and Uses of Funds: Determine where you are going to get money from and what you are going to do with it
Should be used to pay off start up costs, working capital, grow buisness and can be collected from interal investors (friends and family) or external investors (angel and venture capitalists). Before you collect funds you should predict what you are going to do with it once you have planned how and how long it will take to get it.
Success of Mature firms
The more mature( commerically succesful) a firm is the more money the firm will gather from investors
Internal Cash Funds
Use home equity line of credit to pay for mid and long term debts at a comparably low interest rate and use credit cards to pay for short term debt start up captial. Be sure to use personal funds to reduce risk of venture and create conditions to make funding available from other sources.
Cash collection cycle
Negative cash collection cycle: Ideal cash collection cyle where customer pays you and you pay supplier
Second best: Customer pays you and you pay supplier with credit
Be sure to Optimize you cash collection cycle by minimizing the number of payments that haven’t been made yet, maximizing the number of payments that have been made and minimizing inventory costs.
