Question

Angelo was all set to start his new business. Although he did not have as much cash as he would have liked, he figured that once the business got going, the cash generated from sales would keep the business running. He was surprised, however, that sales weren't as strong as he thought and now he is cash-strapped. Angelo is experiencing a common problem known as ______.

Answer 1

The answer is undercapitalization

Step-by-step explanation:

It is evident that the business is undercapitalized. Undercapitalization is a situation when a company/firm does not have enough or the needed funds to run the business operations or pay his creditors.

Angelo is undercapitalized because her sales are not generating the needed cash flows coupled with her inadequate capital. So she needs to raise enough capital or develop new strategy to increase her sales.