Managing Growth Assignment - Essay Example

Management As a general precaution, small businesses mostly work under constraints of finance and limited credit since creditors fear investing in them as they believe most of small businesses incur small profit. Therefore, as the CEO of a small business, one has to consider capital budgeting since it has a long-term effect. Within a simulation of 10 years, as a CEO, one has to invest on current that involve trading securities that involve a business purchasing products that it can sell in short-term to make profit.

The result will help to attract new customers, capitalizing on supplier discount and reducing the inventory because most of long-term assets are inflexible and may “lock in” small companies operations in terms of finance and this has serious consequences on the company’s returns considering their small working capital. Considering that income statement basically looks at revenue, expenses and profit or loss made, balance sheet will assist in tracking changes in sales revenue and expenses along the three phases in a simulation of 10 years and indicate the financial condition of the company in each phase.

This will help business managers to explain to the business lenders and every investors interested to have their shares in the company how adapted new mechanisms such as effectiveness of advertising methods to attract new customers, increase in customers discounts such as after-sale services has changed sales and expenses that reciprocate a change in assets and liabilities of the business. This information once put in inventory records will help business lenders and shareowners understand the effects in order to assess the health of the business.

Therefore, when the company has a positive financial statement, there is an expectation of increase in working capital resulting from increase in net worth of the company that attract more business lenders and shareowners who become confident of going deep into their pockets to invest to a company with favorable net worth. This will help to optimize on external credit provided by business lenders and shareowners to expand business operations in order to increase profit which is the core objective of every business enterprise (Scott, 2005).

The purpose of considering taking opportunities that will enable a small business to win many new customers, capitalize on suppliers discount and reducing inventory is because these are transactions that often affects the cash flow of a business and are neither reported in the income statement nor balance sheet but are traced in the statement of cash flows and can be extracted to compose income statement and balance sheet compared to when one decide budgeting long-term assets that takes a long economic life before they become useful to the business.

On the other hand, limited access to financing act as a limitation to the operations of every business enterprise because finance acts as supportive asset to a business day-to-day transactions. Insufficient or lack of finance paralyses business operation and it is announced to be bankrupt that can cause its dissolution. This can be as a result of increase in cash outflow and reduced cash inflow where the business has more expenses than its revenue. Moreover, limited financing can result to reduced expansion of the business such as starting up other sub-branch related businesses in different areas to expand its segmentation for more penetration to the market industry (Robbins, 2005).

Therefore, we can have a conclusion that CEO has to be innovative and creative due to existing stiff competition in the market industry in product penetration to the market considering that most of these industries produce identical products. Therefore, since working capital is different for every business company, the important aspect is how the CEO works on his or her capital budget. Additionally, timing is one of the important aspect that need to be considered during capital budgeting in order to respond positively to market signals to avoid incurring extra-ordinary loses since we have seen that, to access internal and external financing a business has to have a health net worth statement.

References Robbins, S. P., & Coulter, M. K. (2005). Management. New York: Cambridge Publishers. Schermerhorn, J. R. & Scott Besley. (2005). Management. New York: J. Wiley Publishers.