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3 years ago

Match the stages of business cycle to their financial needs.

Business

1 answer:

LuckyWell [14K]3 years ago

8 0

Answer:

funds raised from personal savings and mortgages - seed stage

external financing through equity or debt - startup stage

external financing, mostly through equity and venture capital - growth stage

high retained earnings that are used in the business - maturity stage

external financing is not needed and debts are paid back - decline stage

Explanation:

Seed stage: The seed stage is when a business first comes into existence. The initial capital needed to finance the business is raised at this time. This capital is usually raised by the owner in the form of personal savings, mortgages, or borrowings from family and friends. This is a high-risk stage, so external financing options are limited.

Start-up stage: The start-up stage is where the first revenues come into the business, but the profits are yet to be realized. Because there are no retained earnings, there is a need for external financing. If the business has an established potential and the owners have credibility, it is easy at this stage for the owner to get external financing through debt or equity from family members, friends, and angel investors.

Growth stage: The growth stage is when a company establishes itself and begins to show profits on its balance sheet. However, the profits and other internal funds may not be enough to sustain growth at this stage. The business needs a steady flow of working capital (short-term funds) to strengthen its operations and fuel further growth. External funding needs are high at this stage, and funds are raised through equity and venture capital. Some companies also issue initial public offerings (IPOs) at this stage to get more funding.

Maturity stage: The maturity stage is when the business has established itself, has a sizable number of customers, and experiences slower growth. Retained earnings will be high, and there is no need for external financing. Businesses issue bonds and securities to fund their operations at this stage.

Decline: A business reaches a decline when demand for its products and services falls, and sales go down. The external financing needs are very low. The business may buy back stock and repay debts at this stage.

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