Читать книгу Reading Financial Reports For Dummies - Lita Epstein - Страница 49

The biggest disadvantage a private company faces is its limited ability to raise large sums of cash. Because a private company doesn't sell stock or offer bonds to the general public, it spends a lot more time than a public company does finding investors or creditors who are willing to risk their funds. And many investors don't want to invest in a company that's controlled by a small group of people and that lacks the oversight of public scrutiny.

If a private company needs cash, it must perform one or more of the following tasks:

 Arrange for a loan with a financial institution

 Sell additional shares of stock to existing owners

 Ask for help from an angel, a private investor willing to help a small business get started with some upfront cash

 Get funds from a venture capitalist, someone who invests in start-up businesses, providing the necessary cash in exchange for some portion of ownership

These options for raising money may present a problem for a private company because

 A company's borrowing capability is limited and based on how much capital the owners have invested in the company. A financial institution requires that a certain portion of the capital needed to operate the business — sometimes as much as 50 percent — come from the owners. Just as when you want to borrow money to buy a home, the bank requires you to put up some cash before it loans you the rest. The same is true for companies that want a business loan. I talk more about this topic and how to calculate debt-to-equity ratios in Chapter 12.

 Persuading outside investors to put up a significant amount of cash if the owners want to maintain control of the business is no easy feat. Often major outside investors seek a greater role in company operations by acquiring a significant share of the ownership and asking for several seats on the board of directors.

 Finding the right investment partner can be difficult. When private-company owners seek outside investors, they must ensure that the potential investors have the same vision and goals for the business that they do.

Another major disadvantage that a private company faces is that the owners’ net worth is likely tied almost completely to the value of the company. If a business fails, the owners may lose everything and may even be left with a huge debt. If owners take their company public, however, they can sell some of their stock and diversify their portfolios, thereby reducing their portfolios’ risk.