Running head: Forum 3 (Module 5)
BUSI530: Forum 3 – Module 5 Discussion Board
Liberty University
Dr. Richard Fendler
February 9, 2014
1
Forum 3 – Module 5 DB2
Introduction
In quoting Dr. Hicks, “Cash flow is the life-blood of a company. Without it, a company
will fail” (Hicks, 2012). This is such a true statement. Another important aspect of a business
survival according to Neil Anderson, president of The Courage Group, a consulting firm for
entrepreneurs, is taking a “failure is not an option mindset” (Dickler, 2007, p.1). A company
must have constant, positive cash flow with a mindset to not give up when business is rough if
they plan to be a success. This discussion will provide information pertaining to how a company
can obtain funds needed to stay afloat until other product developments are completed while
keeping the stakeholders satisfied.
Obtaining Funds Necessary to Keep a Company Alive
Obtaining the necessary funds needed to keep a business alive can be challenging to say the
least, especially when it comes to risk and return, and opportunity cost of capital. It is important
that the CEO understand “measuring the cost of capital is easy if the project is a sure thing”
(Brealey, Myers, and Marcus, 2012, p. 322). Not knowing how successful the new product would
be in the presented case, estimating the cost of capital for projects can be risky. Because
shareholders can obtain a surefire payoff by investing in a U.S. Treasury bill, the company would
need to invest in a risk-free product that can match their rate of interest. When risks are involved
in the production of a new product, “the firm needs to at least match the return that shareholders
expect to earn if they invested in securities of similar risk” (Brealey, Myers, and Marcus, 2012,
p.322). That being said, companies would need figure out how to cut expenses before seeking
ways to obtain working capital. It is the smaller firms that suffer the most from not having
enough capital to remain in business.
Forum 3 – Module 5 DB3
A recent article researched stated attracting capital, poor credit ratings, using the internet,
managing money, and insufficient understandings of risks are the five challenges faced by small
businesses (The 5 Biggest, 2013). “When the firm faces financing frictions, liquidity
management may become a key issue” (Almeida, Campello, and Weisbach, 2004, p. 1777).
Struggling businesses may obtain funds to keep the business alive by applying for government
grants and/or loans. According to a blog at the Small Business Administration (SBA) website,
the author discusses the importance of a business credit rating in terms of being able to obtain
funds. The bottom line is, “While many businesses fail for numerous reasons, insufficient capital
is among the leading causes of business failures. A lack of funding will hamper any company’s
ability and threaten its potential for growth and stability” (Carbajo, 2013. p.1).
Forum 3 – Module 5 DB4
References
Almeida, H., Campello, M., & Weisbach, M. S. (2004). The cash flow sensitivity of cash. The
Journal of Finance, 59(4), 1777-1804.
Brealey, R. A., Myers, S. C., & Marcus, A. J. (2012). Fundamentals of corporate finance (7th
ed.). New York: McGraw-Hill/Irwin.
Carbajo, M. (2013, December 10). What Business Funding Strategy is Best for Your Business? |
SBA.gov. What Business Funding Strategy is Best for Your Business? | SBA.gov. Retrieved
February 12, 2014, from http://www.sba.gov/community/blogs/what-business-funding
strategy-best-your-business
The 5 Biggest Financial Challenges Facing Small Businesses. (2013, October 24). Globial Talks
Business. Retrieved February 12, 2014, from http://globial.com/globialtalksbusiness/5
biggest-financial-challenges-facing-small-businesses/
