Business Support Systems: The Stake


This blog post is a semi-continuation of the Money tree series posted in late July.

Please make reference to that post if you are to get a full picture of what I am discussing today.

There are certain business systems that are efficient in production and output, but they in their very nature face some serious challenges in standing on their own.

When starting up business, it is usually expected that a certain level  of reinvestment or recapitalization of the business will be necessary. It is critical to realize that sudden changes, or the natural progression of the business will require you to invest time, physical and financial resources into the business.

This may be due to the fact that, the business may expand much faster than what was expected, requiring a growth in the capital requirements of the business than what was originally foretasted.

The advantage of such things is that once a business is operational, there is a bit more substance to it and obtaining financing through external investment becomes much easier than when a plan is just on paper.

I have personally felt this pinch with one or two excellent plans that have been well researched but requiring a certain level of start up financing. Especially when you are  a new venturer and everyone else is looking through your portfolio seeking your prior achievements before they can surrender their finances into your hands.

But once a business is operating, even at a small scale, it bears testimony to what it is capable of, and income cases, through due diligence and cash reinvestment, minding cash flow management there is a very high chance that the business may even be able to recapitalize itself.

It may do this even through the acquired goodwill, that increase its value over and above the actual physical and financial asset value it has in its portfolio.

An example of a business system that may require extensive levels of recapitalisation that may take even decades to recover but will definitely be worth it is mining. Substantial amounts of assets have to be bought before production can commence. In cases such as oil rigging, billions may be invested at regular intervals even as the business itself is generating a sizable cash inflow.

However, care has to be taken that recapitalization does not become a perpetual occurrence. A good system is one that ensures that there comes a point when the business reaches maturity, and becomes stable enough to stand on its own and even provide a support base for other expansion plans of businesses in the portfolio of the owners.

Investment in other people’s businesses is also useful because as my mentor always says, “I am not  the smartest person in the world.”

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About potentialtokinetic
A site for writers to express their articles on developmenal issues relevant for a developing world.

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