Answer to Question #80326 in Accounting for anjali

Question

What are the likely cost implications for a business which expands rapidly? Discuss in 120–150 words

Answer 1

The rapid expansion of a business can result in the decline of the cash flows. Arguably, it is because businesses use a fraction of the cash reserves to finance the expansion. Consequently, the move can undermine the capacity of such a business to meet its short term obligations due to lack of sufficient cash flows (Marney & Tarbert, 2011).
Additionally, the rapid expansion of an enterprise can increase the operating expenses of an enterprise. Indeed, there are times when businesses finance expansions using debt. As a result of this facet, the companies are liable to pay interest on a periodic basis thereby increasing the operating expenses (Pettit, 2013). Notably, a substantive increase of the operating expenses of a business can have adverse ramifications on its profitability. Thus, it is essential for the finance officers to ensure that rapid expansions are financed using a healthy blend of various modes of financing for companies to operate sustainably.

 
References
Marney, J., & Tarbert, H. (2011). Corporate finance for business. Oxford: Oxford University Press.
Pettit, J. (2013). Strategic corporate finance. Hoboken, N.J.: Wiley.