Exploring Appropriate Sources of Finance for Startup Businesses: A Focus on Manufacturing Sector

Running head: INTRODUCTION TO ACCOUNTING AND FINANCE
Introduction to Accounting and Finance
Name of the Student:
Name of the University:
Author’s Note:
Course ID:

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Table of Contents
Part 1A:............................................................................................................................................2
Part 1B:............................................................................................................................................3
Part 2:...............................................................................................................................................5
Part 3:.............................................................................................................................................12
Part 4:.............................................................................................................................................15
Part 5:.............................................................................................................................................18
Part 6A:..........................................................................................................................................20
Part 6B:..........................................................................................................................................23
References and Bibliography:........................................................................................................25

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Part 1A:
List the most appropriate sources of finance for THIS business in the start-up phase. Briefly
explain why these are the most appropriate, and also discuss the reasons why other sources of
finance would not be appropriate for this company.
Sources of finance for the manufacturing of miscellaneous items:
1.Bank loans: It is completely external and long term finance also secured. It will be approved
against collateral. Repayment method/schedule can also be adjusted. The interest rates can be
less compared to other sources. Also, it guarantees money for longer period and they charge only
interest for the loan amount.
2.Venture Capital: It is a private equity given by firms to startups which have higher growth
potential in exchange for ownership stake or equity. It is a long term investment by the firm.
Investors play a major role in management decision.
3.Personal Investment or Friends & Family: It could be our savings or assets an individual
possess. Also, we can ask our friends or family members to invest or lend the money it is usually
referred as patient capital and it is repaid when startup is profitable.
4.Angel Investors: They are wealthy individuals who can also be retired executives. They also
help by providing their experience in technical and management knowledge. They also can check
your startup management and would look to take part in decisions.
5.Incubators:It is a type of organization which provides you the resources for startup it includes
marketing, cash and consulting. In return they would ask for equity so they can get benefitted from
profits in the future.
6.Bank Overdrafts: It is similar to a bank loan but has completely different structure. Company
will have permission to withdraw more money beyond its balance in the account and they have
pay interest only for the outstanding amount and interest rates are high.
7.Bank Bills: Bank would be the guarantor for this type and risk will lie on bank not on the
borrower for the repayment .They would charge certain amount of fee for being the guarantor or
for taking the risk.
Banks would be the convenient and secured for the finance as we can deposit and withdraw and
interest is very low. Also, they do not interfere in the management. There can be tax benefits
small business owners would highly benefit from this. Loan approval is lengthy and time taking
process. They also disburse only 70-80% of sanctioned amount in parts. For manufacturing of
miscellaneous items main source of funds can be from bank as everything else is sorted out.
Other sources of funds can be risky because of the interest rates, investors will be involved in
decision making where not all will be benefitted by that as they become part owner would look for
returns rather benefit of other people.

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Part 1B:
List the most appropriate sources of finance for THIS business for future expansion. Briefly
explain why these are the most appropriate, and also discuss the reasons why other sources of
finance would not be appropriate for this company.
1.Partnership: If there are more partners involved in the business then there will be plenty of
funds. Establishment of the business would be easy with less cost. Management decisions will be
internal, there will be no external involvement. Each person would be responsible for their debts
and shares. Any changes can be faster like increasing the production, wages and more like legal
structure. There might be a disagreement between the partners. Life of partnership depends on
the understanding between them.
2.Retained Earnings: It would be the best option for future expansion as it will not lead to any
change in the structure and everything will be same just a decision has to be made between the
partners or a resolution must be passed. It also increases the market value. It doesn’t add in a
liability. It doesn’t involve any outsiders so control on the firm will be same.
3.Franchising:It is one of the best options and most effective. Profits will be from the extra
sales. Owner gets an equity for using the firm name. It also increases the popularity among the
customers. It would concentrate more on purchases used for manufacturing. Training and
guidance should be given to new employees. Franchisee’s owner also gets a benefit for using the
name of established firm.
4.Venture capital: As the firms are interested to invest in startups they can also invest for
expansion of the business. If they see huge growth and profits or demand in the future of the
company. They would always work towards the betterment of the enterprises. Owner would not
be in the driver's seat anymore as they involve in management decision.
Part 1 mainly comprises of information that is used for the organization to detect the level
of different source of finance, which can help in supporting their operations. The most
appropriate source of finance has been listed in this part, which can be used by the organization
for improving their operations to support the cash requirements. From the overall evaluation, it is
detected that finance source from banks is much more convenient and secured for the
organization, as deposits and withdrawals can be conducted adequately with low interest rates. In
addition, the bank source of finance will not interfere with the management and allow full
control to the owners of the business. Furthermore, adequate benefits are mainly detected for

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small business owners, as they can get tax benefits after the loans taken from banks. Hence, the
finance source of banks can eventually allow the business to conduct their operations smoothly
with low interest rates, which are mainly imposed by other sources of finance. Lastly, other
forms of business can be risky for the organization, as investors will increase their exposure in
the organization, which will negatively affect its operations (Maskell, Baggaley and Grasso
2016).
The second part mainly provides information regarding the appropriate source of finance
of different business, which can support them during the expansion process. The partnership
firms mainly gather the required funds from partner, where any debt incurred by the organization
will be distributed within the partners. Furthermore, the retained earnings are the best possible
option, which can eventually help the organization to increase their operations. Moreover,
franchising is the best possible option and effective measure, which can improve the operations
of the organization by increasing their operational capability. Lastly, venture capital is mainly
conducted used by start-ups for increasing the expansion condition of the new business, which
can surge operations of the organization. Therefore, specific sources of finance can be used for
improving the level of operations of the organization, which can raise their income in the long
run (Crawford and Wang 2014).

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Part 2:
Financial Statements-Solution
Harish Enterprises ltd
Balance sheet as at 31 December 2017
Assets Liabilities
Current Assets Current Liabilities 0
Cash
15
0
Inventory
21
5 Non-Current Liabilities
Total Current Assets 365 Bank loans 618
Mortgage loans 437
Non-Current Assets Total Non-Current Liabilities 1055
Land and Building
54
0
Plant and Equipment’s
25
0 Total Liabilities 1055
Furniture, Fixtures and Fittings
14
0
Total Non-Current Assets 930 Shareholders' Equity
Ordinary Shares 240
Total shareholders' Equity 240
Total Assets 1295 Total Liabilities and shareholders' Equity 1295
Profit and loss Statements
Balance sheet as at 31 December 2018