Describe sources of internal and external finance for a selected business
The bank I will use is NatWest as it is the bank I am currently with, therefore, I am more familiar with them then another bank. Starting a sports business there is a number of things to take into account such: whether or not you are better off leasing a building instead of buying, business insurance, how you are going to obtain the money to enable the business to get up and running without lack of funding, assets and how you are going to make payments. Location of leasing Located in Priory Quarter, Havelock Road, Hastings. High quality building that has a floor space of 24,500 Square feet.
This would be ideal for the business to use and renovate due to the size allowing products to be stored on site. The cost of this would be ? 18,000 pa. The cost could be covered by a fixed business loan; this would allow the business to become operation and pay the use of assets such as: delivery transport and staff wages.
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The fixed business loan would offer a loan of ? 25,001 to ? 250,000 with a fixed payment over a ten year period, if the loan is paid off before the ten years interest will be expected dependent on payment.
Storage facilities the size of 80,000 Square feet costing ? 30,000 pa, which will allow suitable storage for vehicles and products. Insurance The insurance of the business depends on the business type, size and if it currently is existent, therefore, there is no set quote without going through the process. Because the business will be new NatWest offer 15% of the first year on the insurance which would make the first year cheaper and more profitable. Obtaining money
Personal savings from previous job and the loan from the bank should cover the money needed to start the business. Wages will be covered by taking out the full loan and with good sales and expansion the total earning of the first year should cover all payments. Payments will be paid promptly with each month including all employees, assets and storage. Also setting up a separate account for the business will enable you to keep track of money whilst knowing what can be spent and what payments have to be made. This will prevent you from over spending.
Gaining public awareness Advertising, from the use of advertising the business can gain some public awareness to enable growth of the business quicker than what it might without it. Television advertising will be quite expensive and will be rather pointless to start with unless the business expanded and owned a chain of store, therefore, local advertising in newspapers, posters, leaflets and local radio advertising should be better suited. The first year would not be the most profitable by any means but allows a good premise to start and work from.
Property ? 18,000 Storage ? 30,000 Advertising ? 500 Insurance ? 2000 – ? 5000 Total ? 53,500 Estimated total including vehicles and staff ? 150,000 Once vehicles have been brought it will become cheaper. Brief description of internal sourcing of finance and external sources: Internal sources Owner’s savings, the portion of disposable income not spent on consumption of goods but accumulated or invested directly in capital equipment or in paying off a home mortgage, or indirectly through purchase of securities.
An advantage of this is it should be available to the business quickly and no interest should be paid. Capital from profits is a type of profit that is realised when a capital asset is sold. While there is some difference in application from one nation to another, the sale of any asset that is defined by law as a capital asset has the potential to generate capital profit. External sources Bank business loan, funds offered to business owners through banks. Borrowers are usually required to have excellent credit scores and collateral.
Bank overdraft, balance of a bank account when funds withdrawn exceed funds deposited. Bank commercial mortgage, helps you buy property, extend or develop your own business premises. Venture capital, capital invested in a project in which there is a substantial element of risk, typically a new or expanding business. Hire purchase, a system by which one pays for a thing in regular installments while having the use of it, for example, building construction may hire three JCB Diggers for use and other machinery.
Leasing, a lessor will lease a building or property to a person or building to allow them use as long as they pay the lessor monthly installments usually. Basic example; would be someone renting a building for their own personal business such as a gym or clothing store. Factoring, A firm that buys a business’s open-book accounts and customarily absorbs all losses if the debtors do not pay. Share issues, Issued shares are a term of law and finance for the quantity of shares of a corporation, which have been allocated and are subsequently held by shareholders.