In startup firms, inventory must be purchased, employees must be trained and paid, and advertising must be paid for before cash is generated from sales. Which of the following reasons that motivate firms to seek funding or financing is illustrated in this example?

Question

Quizplus · Accepted Answer

The example given of purchasing inventory, training and paying employees, and paying for advertising before generating sales illustrates the challenge of cash flow. These costs must be paid upfront, before any revenue is generated, which can create a strain on the company's cash reserves. Therefore, firms seek funding or financing to cover these costs and ensure they have enough cash flow to operate.

In Startup Firms, Inventory Must Be Purchased, Employees Must Be