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As you can see from reading above, Jacinda need advice how to do it in this situation. In this case Yacinda can use Internal or External Sources of Finance. There are several options that I can suggest for het to help to choose the right one. Let’s start from External Sources of Finance.
The 1st option for her could be to use Personal/Self Sources. Of course, these also could include Retained Profits which definition is the cash that is generated by the business when it trades profitably. If her income is constant, certainly the best way is to buy all motorcycles and bicycles at once.
The 2nd option for her is to finance her purchase from Personal/Self Sources plus Borrowing from friends and family.
The 3rd option can be Credit Cards. This is a surprisingly popular way of financing. In fact, the use of credit cards is the most common source of finance amongst small businesses. It works like this. Each month, the entrepreneur pays for various business-related expenses on a credit card. 15 days later the credit card statement is sent in the post and the balance is paid by the business within the credit-free period. The effect is that the business gets access to a free credit period of around 30-45 days!
Now I would like to inform Jacinda about External Sources of Finance.
The 1st option for the External Sources of Finance could be - A bank loan which provides a longer-term kind of finance, with the bank stating the fixed period over which the loan is provided (e.g. 5 years), the rate of interest and the timing and amount of repayments. Bank loans are good for financing investment in fixed assets and are generally at a lower rate of interest that a bank overdraft. However, they don’t provide much flexibility.
The 2nd one Jacinda can use her External Sources of Finance is - Bank Overdraft. It is a more short-term kind of finance. An overdraft is really a loan facility – the bank lets the business “owe it money” when the bank balance goes below zero, in return for charging a high rate of interest. As a result, an overdraft is a flexible source of finance, in the sense that it is only used when needed. Bank overdrafts are excellent for helping a business handle seasonal fluctuations in cash flow or when the business runs into short-term cash flow problems.
Yacinda can also encounter with the problem called as a temporary demand. If demand in delivery of goods is the temporal phenomenon then the best way purchase motorcycles and bicycles is to lease or hire them. It would be desirable also to give Yacinda a full explanation of the differences between these two concepts to enable her to choose the right one. Hire purchase is for a specific item for a specific time, Lease purchase is when you lease something with the option to buy it. Lease or Hire the motorcycles and bicycles could be just the 3rd option of External Sources of Finance for Yacinda.
There is also 4th option to use both - Internal and External Sources of Finance. So Yacinda can purchase for motorcycles and bicycles partly from her Personal/Self Sources plus using one of her bank facilities – Overdraft or Loan.
For the 5th External Sources of Finance option Yacinda can use Credit from Suppliers. Many invoices have payment terms of 30 days or longer. A company can take the maximum amount of time to pay and use the money in the interim period to finance other things. This method should be treated with caution to ensure that the invoice is still paid on time or else the firm might risk upsetting the supplier and jeopardise the future working relationship and terms of business. You can also call this as a careful balancing act of cash-flow.
Conclusion
Summarize the fact that whether I were Jacinda, I would use both – Internal and External option of Finance for my own business.
In a conclusion it would be desirable to add that conducting researches I provided to Yasinda every possible ways of financing of her purchases. So she can choose more appropriate way of finance from all mentioned above sources for her business.