Why do I need capital?

→ To kickstart the business. Capital gives me the funds to acquire the resources I need to begin operations. The capital may be to buy goods that you want to sell on e-commerce website, or you need to buy assets like plant and equipment for your manufacturing operations.

Why do I need assets or goods or talent?
→ If I am in business of setting up a solar farm, I may use capital to buy assets—like, panels, mounting systems, equipment for polysilicon, or inventory—which are essential for producing my goods or delivering my services.

Why do I need to generate sales?
→ Sales bring in revenue. They convert my efforts and other resources into money that supports my operations and helps my business grow.

Why is generating profit important?
→ Profit ensures the business survives and thrives. Accompanied with strong cash flows, the profits reward me and my partners through dividends, allow me to repay any debts, and increase equity.

Why should I retain some of my profits instead of distributing all of them?
→ Retained profits increase my equity. With more equity, I improve my creditworthiness, making it easier to raise debt or get credit from suppliers.

Why is increasing equity and borrowing power important?
→ Because it allows me to reinvest, acquire more assets, boost production, and grow sales—thus strengthening the business cycle.

Understand Your Business Cycle: Ask these questions

Finance & Accounting Glossary