Question

Julia started a cake decorating business last year. Unfortunately it failed quickly. She is convinced that she lacked the necessary funds to promote her business and get it off the ground What did Julia experience? A) inadequate financial control B) undervalued inventory C) undercapitalization D) a cash flow issue

Answer 1

Answer:

C) undercapitalization

Explanation:

Clearly, Julia's cake business was undercapitalized, since she failed in the bare start. The undercapitalization issue is often associated with financial beginnings, when having the right sources of capital is crucial. Startups face significant initial costs and therefore need secure capital to cover them.

A cash flow issue is more common with businesses that are already up and running, but face challenges regarding paying debtors.