C11&C12

• i. Family owned and operated

  ii. Operated in rented small premise.

  iii. moderate to aggressive expansion.

  iv. Insufficient capital - From the owners.

  v. labor intensive - employ only a few skilled workers as employees learn their skills

  from their senior.

  vi. Use simple technologies and have low R&D capabilities

  vii. little specialized management:-

  – Managers have limited skills and capabilities.

  – informal style in managing their employees.

  viii. Produce for the domestic market.

  ix. Have insufficient collateral to raise bank loans.
• Venture capital is risk capital, provided typically by specialist financiers, both private and institutional.

  Venture capitalist take a large risk when they invest in a small companies and expect a large return on their investment.
• Factoring: arrangement, factor company collect debt which advances a proportion of the money it is due to collect.

  Administration of the client’s invoicing, sales accounting and debt collection services.

  2. Credit Protection ➔ Factor takes over the risk of loss from bad

  debts and so insures the client against such as losses. This service is

  also known as” debt underwriting’ or to purchase debts “without recourse” - if the client’s debtors do not pay what they owe, the factor will not ask for his money back from the client.

  3.Advance cash payments to the client prior the debt collection
• Managers can concentrate on running the business rather than spending time dealing with problems relating to slow paying debtors.

  The factor will run the company’s sales ledger department, hence cutting running costs in this area.

  The company’s cash flow position is improved such that the company can pay its suppliers promptly and benefit from payment discount.

  The finance costs of the business are linked to its sales levels and will therefore only increase as sales levels increase
• Expansion can be financed through sales rather than through increased debt or any injection of capital.

  Optimum stock levels can be maintained since the cash is readily available for injection.

  Insurance against the company’s bad debts is provided since the factor takes over the risk of these losses if the agreement is a ‘without recourse’ agreement.