Please note! This essay has been submitted by a student.
Financial environment of Genesis is no different from other medium-sized companies. They normally do not attract significant financing from loan due to their perceived low solvency or ability to pay. This is what the case is in Genesis. It is a company whose potential cannot be underestimated but one that is having problems in financing its expansion strategy. We are told that initial financing partly came from family seeds and venture capital which formed equity investment. The problem with equity investment from venture capital is that they normally finance companies that are starting up and a lot of revenue realized may end up being channeled to them in terms of capital gains. They cannot be likened to the normal shareholders whose such capital gains may be converted back to ordinary shareholding for more investment. Another problem the company could be facing is the dilemma on whether to plough back part of profit realized to expand its operations. Most probably this financing may not be enough. Bank loan can be a good option but the problem would be paying the money. Since the money required seems to be a significant amount, there are jitters that it may not be easy to pay this amount (Kotler, 2009).
Financing the company as a start up may not be suitable for a number of reasons. To start with the rate of return that venture capitalist may demand may not be as economical as other sources. In many cases, venture capitalists do limit themselves to those companies that are starting from scratch. They may assess the company’s share price and find that the prices will not skyrocket as they would have it been a new company. Venture capitalists are not perceived to be real shareholders. In this regard, they cannot sacrifice some dividends or capital gains so as the company expands (Prime, 1959).
The Genesis can improve its strategy by having a reliable and strong forecasting model. In this way they can determine the most probable level of operations. A strong sales and expenses forecasting model would particularly be very helpful. This is because by being assured of the most probable future demand it can be easier to borrow with confidence that the money will be payable. It is from this model that will form the basis of financing. Genesis should then go ahead and borrow from bank that amount will meet the demand following the expansion. So as not to default, a forecasted cash flow would also be very necessary so as to know how actual cash will stream in to facilitate the payment. It can also consider investing back part of the realized profit to facilitate the expansion. Another way that the company can improve its strategy is by considering borrowing from international markets and hedging strategies. For instance, in their production they can negotiate with the suppliers for a forward contract. This may be an agreement to deliver a specified amount of supplies at a given period of time at certain price. This may lead to a lot of savings. However, this may require a lot of investment in access to information so as to adopt a safe strategy. This is because, it can be counterproductive where the supplies supplied are highly priced than the existing market prices at that time. Not so dissimilar is lead payment and delayed payment in line with money market hedging. In lead payment, Genesis can consider borrowing money but delaying payment when it expects that market conditions will improve and pay relatively less than it would have paid had it paid as required or promptly. Lead payment would be used when market conditions are feared to be headed for worse. In this regard it would be prudent to pay in advance than pay more when such conditions manifest themselves. This is a way Genesis can consider strengthening their financial strategy (Prime, 1959).
Global financial markets can affect genesis. Foreign exchange rates, global prices, differential interest rates and inflation rates can affect financial strategy. For instance, it can happen that Genesis wants to sell its products overseas. Then it means that foreign exchange rates would have a lot of bearing on revenue realized. When their currency is strong relative to other foreign countries, it means that exports would be cheaper in the eyes of the importing country. It is from this understanding that foreign currency becomes important in determining a financial strategy. It would not be prudent to take your investment to countries characterized by high inflation. Foreign investors also prefer those countries that have low interest rate (Prime, 1959).