Strategic Planning in the Small Business

Unit 2

HO

2-4 (continued)

the

candy store to recognize

this threat earl)

enough to cir­

cumvent and

prevent this disastrous

outcome. Again,

proacting

is the key

rather then reacting.

Sources and

Cost of Capital

One of

the key issues every

small business faces

is financing.

Questions

of where and how

the business will secure

the funds

necessary

for its operations are

often perplexing.

Yet, the an­

swers may spell

the difference

between success and

failure.

Rare is the

small businessperson

who possesses

sufficient fi­

nancial

resources to personally

fund the range

of needs the

business

will encounter. Therefore,

outside sources

must be

used. Two fundamental

concerns

should be addressed.

First,

it is important to identify

the sources ofcapital

available

to the business. These

may come from

fairly informal contacts

such

as loans from friends

or family or

from more formally

established institutional

bases such as

commercial banks,

the

Small Business

Administration, venture

capitalists, or suppliers'

credit. This,

of course, is by no

means an exhaustive

list. Table

1-I offers

some additional

sources that may be

considered.

Recognizing

sourceo of

capital is only the

first step. Next,

it

is necessary to identify

and clearly understand

the cost of

capital. The small

business owner has

to decide whether

the

financial cost of

securing the capital

is worth the gains that

will

accrue from the application

of the capital.

Cost of capital is

not

limited

to purely financial

terms. Some of

the sources of capital,

noted in Table 1 -

1,impose definite restrictions

on the business,

affect the

business' flexibility,

and alter the owner's

degree of

control. These costs

must be realized

and balanced as one

con­

siders each source

of funds.

Competition

One

of the most critical

parts of the environmental

analysis

deals

with competitive

assessment. In many

regards, the com­

petition

is the most visible,

commonly perceived

threat the firm

ChapterOne

Environmental Analysis

35

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