Based on the projected income statement for one month, the business needs additional financing to meet the daily operational expenses for the business. One of the reasons why the business requires additional financing is because most of the sales are made on credit. Therefore, it would be difficult to ascertain the time frame within which the debtors will honor their debts. In addition, part of the profit made by the business is not in the form of cash and, hence, the need for an additional source of financing.
One of the ways in which the business would get the additional finance is debt. However, debt financing would lead to a reduction in the profit generated due to the interest payments. Notably, in the event that the business does not get the anticipated cash flow in the coming months, the business will be faced by challenges in repaying the loans. The other option that the business can utilize to get additional financing is equity. One of the benefits of equity financing is that the business will not repay the amount. However, the profit will be shared amongst the individuals who have provided equity for the business. The best option for financing would be debt if the business has the ability to repay the principle and the interest amount.
The business can also use the suppliers’ money as a source of additional finance. The business would have to enter into an agreement with the suppliers to be allowed a longer repayment period. One of the bootstrapping measures that the business should take is to ensure that the debtors pay within a short-duration and take a longer duration to pay the suppliers. The other measure would be cost reduction to ensure that the operational cost are maintained at a minimum level.
