CAPITAL FORMATION AND CONTINUITY FOR A HORTICULTURAL GLASSHOLDING

• to enable consumption
• to make reservations for future expenditures for business and family (e.g. investments, pension scheme, succession, etc)

The degree to which a business is succesfull in meeting the aforesaid goals is determinative for continuity in both the short and the long run. It is possible to distinguish three different levels of income:

1. a level at which both goals are met,
2. a level at which the business results are inadequate beyond covering running expenses and, sometimes, a part of the necessary reservations, and
3. a level at which business results are not sufficient for covering even running expenses. Liquidity problems arise bearing the possibility in them for business failure.

At the third level chances for the business to survive are slim indeed while for a business facing the situation describes as level two for too long the long-run continuity is endangered. Insufficient reservations lead to means of production that are obsolete in both a technical and an economical sense. They may also (partially) prevent a build-up of pension funds. This means that at the moment of succession an extra large amount of capital is needed.

On the one hand the means of production will have to modernized while on the other hand the business has to provide extra funds to finance a pension scheme. This extra need for capital is a hinderance for the successor and can even preclude a succession. The question arises how much capital has to be formed during the lifecycle of a business to quarantee long-run continuity and thereby in a way the succession. By our Institute a model is being developed which will help us to improve upon our insights into the necessary capital formation during the lifecycle.