Financial Plans
Start Up Costs
The total amount of money capital that must be raised before the company can operate is £18,845.
Possible Sources of Capital
The method of finance that the business will use to cover set up costs will be a Bank loan. The loan will have to be as long as possible to ensure that enough money is earned to cover the repayments and interest. The reason this source has been chosen is because it allows large amounts of money to be borrowed if the bank is happy with the business plans put forward. It also allows the business to pay back the loan in instalments over a period of time so the loan can be paid back gradually in relatively small ...
This is a preview of the whole essay
The method of finance that the business will use to cover set up costs will be a Bank loan. The loan will have to be as long as possible to ensure that enough money is earned to cover the repayments and interest. The reason this source has been chosen is because it allows large amounts of money to be borrowed if the bank is happy with the business plans put forward. It also allows the business to pay back the loan in instalments over a period of time so the loan can be paid back gradually in relatively small amounts as it is earned. It will hopefully cover all start up costs and allow the business to be up and running smoothly. The business is confident that the loan can be paid back fully so meeting repayments is not a problem.
Hire purchase is a good way of raising finance as the latest model goods are available and they can be paid for gradually. However hire purchase is only available on equipment and machinery. A large start up cost to the business is shop fittings and this is not covered by hire purchase. Hire purchase involves paying money back to a Finance House who charges large rates of interest.
Trade Credit allows things to be bought and then pain for at a later date. This is another way of having small initial start up costs. Trade Credit is normally interest free so there is no extra cost t the business. However there is not normally a long period of time given to pay money back making it difficult for small business t keep up with repayment schedules. This could lead to the item having to be returned to the supplier or even legal action.
Leasing is a very effective way of keeping start up costs low because when hiring goods only a deposit has to be paid and then a small monthly fee. If the goods bought break the responsibility of maintenance would not lie with the business. The party that has hired the goods can not be taxed on them which also keep costs low. The problem with leasing is that over a long period of time it becomes more expensive than buying goods and as the plan of the business are long term this is not suitable.
Investment this would an ideal way of raising money however finding people to invest in small or large businesses is very difficult. For small firm investors are usually family or close friends. When investing other people’s money there is a huge responsibility. Selling shares is another way for people to invest rather than just giving the business money. Selling shares as a small firm can only be done privately and there is a lengthy and expensive legal process to take before shares can be sold. When shares are sold a share of the profits must go to the shareholders making the overall profit for the business much smaller.
Going into partnership is a way of doubling the start up funds available to the original proprietor. However problems that occur with this option are that it can be hard to find someone to go into partnership with and control is split between the owners. Arguments and disagreements about the business may effect is success.