Sources of internal and external finance
Diamond Cleaning
Bank Loans
Leasing
Sourcing Finance
Overdrafts
Business Angels
Personal savings
Diamond Cleaning
They are a start up business, a sole trader who is planning on setting up a new business in Llandudno and surrounding area. Their aim is to reach out to ''private homeowners and promise a contract with local estate agent for 3 offices.'' The materials they would require to meet achieve their agenda are such as; vehicle, cleaning equipment, cleaning supplies, stationary, marketing materials, etc. Coming to the market as a sole trader they have limited sources of finance. However here are some internal and external examples which could help them with their start up business:
The advantage of this kind of source of finance is the easy access for the large amount of money with rather low fixed interest rates.
However the disadvantage of getting a bank loan for a start up business requires plans ahead such as cash flow forecast etc. Getting hold of the bank loan itself takes some time for the process as well as requires some amount of paper work to meet the appropriate requirements for the business to get it.
Overdrafts are a very accessible form of external source of finance. They're also flexible for borrowing money because a business might want to borrow the money instantly and get it as soon as possible.
On the other hand, there are high rates of using leasing as a form of finance for the company. It is because arrangement fees that come along with borrowed money play a big part of getting it.
The benefit of using personal savings as a form of finance for a start up business is that it will provide full ownership of the company. This means that all the future profits made on the business will 100% return as their own money. It could help diamond cleaning to prioritise business expenditure and prevent any excessive spending.
However the disadvantage that comes with using their own savings for a start up business could be that the owners are personally responsible for the potential threat of a business prospering ineffectively if they were to fail. This means they could be risking their savings and losing it if the business isn't successful.
Through leasing a business doesn't require a lot of hassle around it because there's no upfront cost. This gives a business opportunity to start getting equipment without any financial input themselves as they might not have it yet at the beginning.
On the other hand, by leasing out the equipment in the long term, it doesn't allow the business to own it and consider it as their company's asset. Also there exists a potential threat if a business damaged the equipment they would be fully responsible for that and it would require extra costs for it.
By sourcing finance from friends or family, it is rather a reliable source of finance to gain as it's convenient and accessible easily.
However, the disadvantage of sourcing finance is that sometimes if the re payments are missed then misunderstanding may arise about the arrangements that haven't been met. Therefore, it could damage relationship between the business owners and their friends or family that could give business bad reputation.
Business Angels are able to offer the business knowledge and contracts to help the growth and make them enhance further on the market. Also they are able to access finance easily for the company which is convenient and appropriate. Additionally, they don't charge any extra costs, interest or repayments which is a great benefit for the business because they will only have to give back what they owe.
The disadvantage is that Business Angels requires some time to find an appropriate investor for the business. Therefore, the business would have to give up a share of their company to the investor.