Sources of Finance for Small Business Start-ups, Large Business Expansion and Small Group of People for Acquiring Medium Sized Company

This presentation discusses the different sources of finance for small business start-ups, large business expansion and small group of people for acquiring medium sized company. It also highlights the implications of these sources and their legal restrictions.

Introduction
• The section herewith illustrates the appropriate source for small business
start-up, a large business expansion and small group of people for acquiring
medium sized company.

Different sources of funds
 Owner's Capital
 Retained earnings
 Sale of Fixed assets
 Third Party Investment
 Bank loan
 Government grants
 Hire purchasing
 Issue of shares

Implications of sources
Sources Legal Dilution of
Ownership
Bankruptcy
Owner's capital
There is no legal
restriction of
generation of funds
by the owner's
capital.
Controlling power of
the company will be
diluted.
There will be no
financial obligation
on the organization
with the owner
capital due to
insolvency situation
will not arise.
Sale of fixed
assets
Similar to the
owner's capital,
there will be no legal
implications on sale
of fixed assets.
With the sale of
asset there will be
no change in
ownership position
of the business
(Dransfield, 2004).
Solvency of
business will be
affected in adverse
manner because
value of business
will be reduced.
Retained earnings
On this restriction
can be imposed by
shareholders of the
company because it
can reduce the
return of investment
Through retained
earnings there is no
change controlling
position of the
business.
It is a part of reserve
and surplus thus,
financial obligations
are not affected by
it. Consequently, it
cannot lead to the

Cont.....
Venture capitalist
There is no legal
implications of the
venture capitalist.
It will vary as per the
conditions imposed
by third party
(Parkinson, 2012).
In situation where
organisation is not
able pay their
liability to the third
party then they
declared as
insolvent
Bank loan
More and more
paper work is to be
done
Ownership remains
with Bank (Management
accounting, 2014)
There will be no
financial obligation
of using such
sources
Government
grants
This source
required effective
proposal that is
based on ethical
terms
Ownership remains
with organization
Loss to government
in such case
Hire purchasing
These sources are
used after making
lost of paperwork
The ownership
comes to the owner
at the payment of
last instalment
This creates a loss
for hire purchasing
company

Case 1: Sources of finance for Small business start ups
•For starting a new venture is not an easy task for the individual, it is important for the
entrepreneur to take appropriate decision regarding selection of sources so that
activities can be carried out it appropriate manner. For starting a new small business,
two sources are feasible for the entrepreneur that are personal savings and bank loan.
Bank borrowings is the source through the help of which large amount can be raised
in short span of time. For this, entrepreneur only has to complete the few legal
formalities.
• However, repayment of loan is also based on monthly instalments which
would be feasible for the individual to start new venture. Along with this, owner's
capital another good source for small business start ups. It is because, for initiating
any business, owner has to invest his/her own money so that other investors can be
influenced. On the other hand, there is not such liability on the part of firm but if
investment is not used in suitable manner then it can be major loss for the
entrepreneur.

Case 2: Sources of finance for large business expansion
•Herewith, in this section a case of existing firm is taken into consideration who is
willing to expand business in new markets. For example: This organisation is so
called retail entity who has taken registration for initial public offerings. There are
various internal and external sources of finance available for the business. For an
expansion project the company requires large amount ifor with the appropriate
sources of finance are required. It has been assumed that the company is going to
open new outlets in the market so it becomes important to put money in expansion
project. For raising large amount of funds the company is suggested to go for equity
financing as it will be the most important sources of finance for large scale company.

Cont..
• Through issuing shares in the market the large amount of funds can be acquired by
the company. The rationale behind suggesting issue of share as a sources because , it
will provides benefits in terms of raising large amount of funds at minimal cost. The
company has not to pay interest but its can pay dividend as well.The second and
appropriate sources of finance for this large scale company for expansion is retained
earning. These are that source available with companies in manner of saving from last
years business. The profit that are retained from past year business have been used to
for expanding business. The rationale behind using retained profits is that it is an cost
effective source of finance but the company has to pay opportunity cost for using such
source of finance.

Case 3: Sources of finance for Small group of people
•In order to buy a medium sized firm to enhance the level of operations, group of
people should use government grants and venture capitalist. The main aim behind
recommending these source is that, they will help in raising large amount of money
through the help of which people working together can buy medium sized firm and
expand their business operations. The main advantage of government grants is that
they are easy to acquire as government of UK promotes such investment for the
expansion or growth. Along with this, grants are prestigious and easily provide instant
credibility and public exposure to the business. On the other hand, venture capitalist is
another major source through which group of people can buy the existing company.
However, they provide large amount of money for investment as well as have lesser
interest then the shareholders. But it increases responsibilities for the management to
provide accurate and wide range of information to the investors so that they can
evaluate the business risks and accordingly make decisions regarding future
investments.

REFERENCES
•Correia, C. and et. al., 2012. Financial Management. Juta and Company
Ltd.Verbeeten, F. H. M., 2011. Public sector cost management practices in The
Netherlands. International Journal of Public Sector Management. 24 (6).
pp.492 – 506.Sources of finance. 2012. [Online]. Available through:<http://
http://www.bized.co.uk/learn/business/accounting/sources/index.htm>.
[Accessed on 6th November 2015 ].