Financial management in the small firm is important because you have to rely primarily on trade credit, bank financing, lease financing, and personal equity to finance the business. There is a much more severely restricted set of financing alternatives than those faced by the financial vice-president or treasurer of a large corporation.
On the other hand, many financial problems facing a start-up are similar to those of larger corporations. For example, the analysis required for a long-term investment decision such as the purchase of machinery or the evaluation of lease-buy alternatives, is essentially the same regardless of the size of the firm although the financing alternatives available to the firm may be radically different.
One area of particular concern for the smaller business owner lies in the effective management of working capital. Net working capital is defined as the difference between current assets and current liabilities and is often thought of as the "circulating capital" of the business. Lack of control in this crucial area is a primary cause of business failure in both small and large firms.
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