Financial Sources for Company Scale-Up

Financial Sources for Company Scale-Up

Pavla Pokorná (School of Business Administration in Karvina, Silesian University in Opava, Czech Republic)
DOI: 10.4018/978-1-7998-2714-6.ch007

Abstract

This chapter deals with the reinvestment activity of enterprises. Reinvestments are commonly discussed in connection with public limited liability companies, where the general meeting of shareholders decides how much of the profit, they will redistribute among themselves and how many per cents they will return by reinvesting in the company. However, this chapter often deals with smaller companies, but for many companies these decisions are of an existential nature. These dilemmas are crucial for the company in terms of the direction of the company and determining its own character and focus. In these companies, the direction of funds is decided by the company managers or their owners. Each company is specific, both in its area of business, its strategy or its nature of development, this and many other factors influence what companies invest in or, as in this case, reinvest their funds.
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Background

As indicated above, in this subchapter we will learn the basic principles of the emergence and subsequent direction of reinvestment. Reinvestment is commonly articulated in the context of entrepreneurship, more specifically a successful business, as the business aims to maximize profits, being the principles of economic policy, as stated by Baumol and Blinder (2016). There are also many definitions in this general theory, especially in the Czech business environment, such as the purpose of own-account entrepreneurship and the responsibility of gainful employment in the business or in a similar sense with the intention of doing business (new civil law) Code 89/2012, § 420). According to Veber and Srpova (2012), there are other types of success in business, for example, creativity that helps to develop itself and the company so that the company is not standing but dynamic. Sustainable development is one of the fundamental principles of business and is reflected in all business decisions that create a functioning, prosperous business. Allocation of revenues, acquisition of financial resources, investments or reinvestment, ability to create value and thus to successfully run a business in the long term and become a good entrepreneur (Režňáková, 2012). This view is consistent with the general treatment of a rational person, who should behave according to capitalist principles and should rather invest in what will bring value to him in the future and not in passing goods (Lane 2007). Such business is characterized by a positive economic result. This condition is an insurmountable obstacle for many entrepreneurs, because according to data from the Czech Statistical Office, up to 70% of companies do not meet with success, i.e. a positive economic result and will close their activities in the first year of their activity. Indeed, the number of entrepreneurs in the first year of business is startling and this trend is even more shocking in the longer term, for example five years, as up to 90% of entrepreneurs close down within five years of starting their business (Srpová and Řehoř, 2010). So, if a company achieves an imaginary goal and therefore produces a profit, then there is a business dilemma what to do with the desired and certainly blackened business success subsequently.

Key Terms in this Chapter

Marketing: these are activities directed out of the company, which result in an increase in the number of products or services sold to the customer segment).

Equipment: it is a material property owned by the company and employees use it, both in the working process (production machines, company cars, etc.) and in the leisure time (showers, restrooms, etc.).

Diagram: a graphical representation of the evolution in this case of processes over time.

Reinvestments: investments that have already been successfully made and have made a profit, these funds are reused in another investment and are therefore reinvested in the enterprise where the funds were generated as a result of the previous successful investment.

Investments: Targeting money, efforts and other business development activities in various areas such as increasing jobs, new machines, etc.

R&D: means research and development that relate to the systemic activity of an enterprise for the creation of something new. This can be a workflow or, more traditionally, a product that has been brand new or has been modified by an existing product.

Decision Tree: this is a scheme in which the person decides according to the given possibilities and then proceeds to the goal to which he/she had established his / her previous selections/decisions.

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