How to Avoid Undercapitalization

Undercapitalization is never good for business. It occurs when a business holds insufficient funding, or capital, to support its operations. This serious concern can lead to a major financial crisis for any business or even business failure.

The obvious solution is to ensure that your company has the right amount of money to achieve your financial and business goals. It is common, however, to underestimate how much capital is necessary to pursue the most profitable projects. Business owners who fail to realize how much money is required to get their business up and running, and then sustain it, likely will be affected by undercapitalization.

How to Stay Solvent

Being aware of your cash flow and funding projects in terms of employee wages, equipment, supplier materials and other obligations before you receive your first project payment will help you stay solvent.

When you properly estimate cash flow, you can avoid undercapitalization.

Undercapitalization’s Impact

Undercapitalization can restrict your company's daily operations, growth and long-term success. With sufficient capitalization, you can manage slow periods as well as times of increased production. Having access to sufficient funds is a critical characteristic of a successful small business.

The process isn't easy, but you don't have figure it out on your own. If you want to ensure your business has sufficient capital to pursue the most profitable of projects, contact us. We can walk you through the business plan process. Contact us today to learn more about how to maintain the proper capital in your business and be successful.