This section is from the book "Business Finance", by William Henry Lough. Also available from Amazon: Business Finance, A Practical Study of Financial Management in Private Business Concerns.
A proposal which was brought up for criticism some time ago, was to form a new company which should build a modern ice cream plant, with the latest labor-saving devices and the best methods for the manufacture of pure ice cream, with a capacity of 3,000 gallons per day, in the vicinity of an important southern city. Among the more important questions on which exact information should be secured, it was suggested, were the following:
What is to be the cash investment in real estate? In machinery? In horses, wagons, and other equipment? Will it be necessary to extend credit to any considerable extent to your customers? Is there likely to be any trouble with collections? How much do you expect to borrow on mortgage?
How much do you expect to borrow from banks?
How large will your accounts payable normally be and what will be the average terms of payment? What working capital in addition to your permanent investment in buildings and equipment are you providing for? What is to be the capitalization of the company? What kinds of stock and notes or bonds are to be issued? Are you sure of getting excellent management? Has provision been made for repairs to machinery, fuel, light, office equipment and supplies, drivers and helpers, etc.? Will the estimated volume of sales in practice be obtained without prohibitive expense? At what expense? What is the earning power of the corporation likely to be after deducting all selling and administrative expenses?