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by sundaymorningstaple » Sat, 20 Feb 2010 11:23 pm
Aster,
Good question. The answer isn't simple but here in Singapore I can give you a few reasons. Depending on the business model/industry if you are bidding for contracts, especially if your company is in the construction or services industries and trying for government contracts, Tenders are put out and companies must have a certain paid up capital in order to bid on the contract. If you think about it, it makes sense. If you had a business with only a 50K paid up capital and you were bidding on a multimillion dollar project, even though you might be the lowest bidder, if you were letting out the tender, would you give that big of a tender to that "small" of a company?
Another point regarding capitalization, with only 50K paid up capital, you definitely would have much cashflow movement if you had a government contract whereby it usually takes a minimum of 3 months to get paid from them. Which means, if they do progress payments a month at a time, you would need 4 months worth of salaries and operating expenses before you saw a dime. If you could only manage 50K up front.........
SOME PEOPLE TRY TO TURN BACK THEIR ODOMETERS. NOT ME. I WANT PEOPLE TO KNOW WHY I LOOK THIS WAY. I'VE TRAVELED A LONG WAY, AND SOME OF THE ROADS WEREN'T PAVED. ~ Will Rogers