Competitive Advantage Strategic Management

The term can be defined as "anything a company does well compared to other competing companies." A competitive advantage goes to a business when it does something its competitors cannot or when it has something its competitors want. For example, a competitive advantage in a recession may provide some companies with a liquidity reserve in which they can buy back companies in difficulty and strengthen their strategic position. In other cases, having a competitive advantage can mean that a company has less fixed assets than a competitor, which is still beneficial

Competitive Advantage
Strategic management is all about acquiring and preserving a competitive advantage. The term
can be defined as "anything a company does well compared to other competing companies." A
competitive advantage goes to a business when it does something its competitors cannot or when
it has something its competitors want. For example, a competitive advantage in a recession may
provide some companies with a liquidity reserve in which they can buy back companies in
difficulty and strengthen their strategic position. In other cases, having a competitive advantage
can mean that a company has less fixed assets than a competitor, which is still beneficial in the
event of an economic downturn
Sustainable Competitive
Advantage A company can only imitate a competitive advantage for a certain period as a
competitor and copying the business strategies result in losing the competitive advantage in the
long-term. It is therefore imperative that the company maintains a developmental and a
sustainable competitive advantage.
This can be achieved by
: • Continuously adapting to changing external business environments and adapting to internal
strengths and capabilities through smooth channelling of resources and capabilities.
• Formulation, implementation and effective evaluation of strategies using the factors described
above.
A competitive advantage must be acquired and defended. As a result, agile companies that
respond to changing market conditions and whose internal capabilities are geared toward
external opportunities are those that would survive in the brutal business landscape of the 21st
century. It is ethereal and can change. Therefore, companies must always be on the lookout for
new competitive advantages and pay attention to the movements of their competitors.
Core Competencies: Essential Skills for the Success
Core Competence is a unique skill or technology that creates clear customer value. For example,
the main competence of Federal Express (Fed Ex) is the management of logistics. Unique
organizational skills are embodied primarily through the collective knowledge of people and the
organizational system that influences the way employees interact with each other. As the
company grows, evolves and adapts to the new environment, its core competencies adapt and
evolve. Basic skills are therefore flexible and evolve over time. They do not stay rigid and firm.
The organization can make maximum use of the given resources and associate them with the
new opportunities offered by the environment.
Resources and skills are the basic elements for which a company creates a value-added strategy
and implemented in order to achieve adequate returns and strategic competitiveness. Resources
are inputs for a company in the production process. These can be human, financial,

technological, physical or organizational. The more unique, valuable and specialized the
resources are, the sooner the company has the basic skills. Resources must be used to build
strengths and 6 eliminate weaknesses in the business. Skills relate to organizational skills to help
your resource team integrate more effectively.
IMAGE (FLOW DIAGRAM)
Organizational skills usually come from the organization's system, processes, and control
mechanisms. These are immaterial nature. A business may have unique and valuable resources.
However, if it does not have the ability to use these resources productively and effectively, it
cannot create a key qualification. Organizational strategies can develop new resources and
capabilities or strengthen existing resources and capabilities, thereby strengthening the
organization's core competencies.
Core competencies help a company differentiate its products from competitors and lower costs
compared to its competitors in order to gain competitive advantage. This helps to create
customer value. In addition, basic skills help to create and develop new goods and services.
Basic skills determine the future of the organization. These decide on the characteristics and the
structure of the global competition organization. Basic skills give way to innovations. By using
basic skills new technologies can be developed. They provide customers with high quality
products and services.
Definition: Generic Strategies:
Generic, as the name implies, are basic in nature and offer a company the opportunity to
influence its competitive advantage in the market of its choice. Although the benefit may be in
the form of low cost or product variation, the scope may be broad (industry wide) or narrow
(market segment)
Porter’s Generic Strategies Model for Competitive Advantage:
Porter proposed four "generic" business strategies to gain a competitive advantage. Strategies
focus on the scope of activities in a company’s terms of its size and the extent to which a
company wants to differentiate its products. The most important strategic challenge for most
companies is to find a way to achieve a sustainable competitive advantage over other competing
products and companies in the market.
A competitive advantage is an advantage over competitors, which is achieved by providing
consumers with greater value either through lower prices or by providing greater benefits and a
service that justifies higher prices.
The four strategies are:

Strategies for differentiation and cost containment target a competitive advantage in a variety of
market segments or sectors. In contrast, differentiation and cost targeting strategies are applied in
a small market or small industry.
IMAGE (SOURCE OF COMPETITVE ADAVNATGE
Cost Leadership:
The goal of this strategy is to become the lowest cost producer in the industry. The traditional
approach to achieving this goal is to produce on a large scale, allowing the company to leverage
economies of scale. Why is cost control possibly so important? Many (possibly all) market 8
segments in the industry are supplied with a focus on reducing costs. If the sales price achieved
is at least (or almost) the market average, the manufacturer with the lowest costs (theoretically)
benefits from the best profits.
This strategy is generally associated with large companies that offer "standard" products that are
not very differentiated for most customers and are easily acceptable. Occasionally, a low-cost
leader will also disconcert their product to maximize sales, especially if it has a significant cost
advantage over its competitors, thereby further increasing its market share.
A cost containment strategy requires close collaboration across all functional areas of a
company. To be the most cost-effective producer, a company is likely to achieve or exploit many
of the following goals:
• High Productivity
• High Capacity
• Utilization
• Leveraging Bargaining Power to Beat the Lowest Prices
• Production Resources
• Production Methods
• Efficient Use of Technology in The Production Process
. • Channel Access to Effective Distribution
Focus Strategy:
It concentrates on a segment narrowing and a cost advantage or one Go for differentiation within
the segment. It focuses on the needs of a segment and carries its name accordingly. Due to the

concentration of the business, the company has a high level of customer loyalty, but due to the
low volume, less bargaining power and higher costs. Companies in this sector, through their
understanding of the customer, can create a wide range of products to satisfy their customers.
Differentiation Focus:
In the differentiation strategy, a company strives to differentiate within one or a few target
market segments. Due to the specific customer needs of the segment, products can be offered
that are significantly different from those of competitors and can appeal to a broader customer
base. For 9 any company applying this strategy, it is important to ensure that customers have
different needs and desires - that is, there is a valid basis for differentiation - and that competing
products do not meet those needs and desires. Differentiation is the classic strategy of niche
marketing. Many small businesses can enter a niche market segment with this strategy and
achieve higher prices than undifferentiated products. There are many successful examples of
focusing differentiation. For example, Apple has its own user interfaces, operating systems, and
hardware that are designed to enhance the customer experience, resulting in superior brand
awareness and competitive differentiation.
Differentiation Leadership:
With leadership differentiation, the organisation targets now much larger markets and the focus
is now on attaining competitive advantage through overall differentiation all over the country.
This strategy is to select one or more criteria used by buyers in a market and then position the
company in a unique way to meet those criteria. This strategy is usually associated with charging
a high price for the product, often due to higher production costs and additional value-added
functions for the consumer. Differentiation involves charging a higher price that covers more
than additional production costs and giving clear reasons to prefer the product to other, less
differentiated products. This goal can be achieved in many ways, although it is not easy and
requires a significant and sustainable marketing investment. Methods include:
• Superior product quality (features, advantages, durability, reliability),
• brand image (strong customer recognition and wishes, brand loyalty), industry-wide
• use in all industries main channels (i.e., the product or the brand is an essential part of the retail
store)
• Permanent promotion - Often dominated by advertising, sponsorship, etc.
PESTLE Analysis - A Business Analysis Tool
What is PESTLE Analysis? The PESTLE analysis, sometimes referred to as PEST analysis, is a
concept of marketing principles. In addition, this concept is used by companies to monitor the
environment in which they operate or to plan the introduction of a new project / product /
service, etc. PESTLE is a memory base which in its developed form P policy, E for economic, S
for social, 10 technological for T, L and E for right environment designates. It provides a bird's-

eye view of the entire environment from different angles to be reviewed and tracked while
thinking of a idea / plan. The framework has undergone some changes as marketing gurus have
added some things, such as: For example, a code of ethics to clarify the demographic element
while the framework is used in market research. Here, it is worth asking some questions analysed
and give them an idea of what to consider. These are:
• What is the country's political situation and how can it affect the industry?
• What are the prevailing economic factors?
• What significance does culture have on the market and what are its determinants?
• Which technological innovations should emerge and influence the market structure?
• Are there industry laws or can they be changed?
• What are the environmental concerns for the industry?
All aspects of this technique are critical to any business unit of a business. Beyond market
understanding, this framework is one of the backbones of strategic management, which defines
not just what a business should do, but also accounting. for the goals of an organization and
related strategies. The importance of each factor varies depending on the types of industries, but
it is imperative that every strategy that a company wants to develop leads to making PESTLE
analysis because it is a more complete version of the SWOT analysis.
Politics:
These factors determine how much a government can influence the economy or a sector. For
example, a government could introduce a new tax or tax that could change the whole structures
that generate revenue from organizations. Political factors include tax policy, tax policy, trade
rates, etc. that a government can take about the financial year and this can greatly influence the
business environment (economic environment).
IMAGE (FLOW DIAGRAM-COMPETITVE ADVANTGE MODEL)
Economic: These factors are determinants of the performance of an economy, which have a
direct impact on a company and long-term effects. For example, an increase in the inflation rate
of an economy would affect the way companies value their products and services. Moreover, this
would affect a consumer's purchasing power and change the demand / supply patterns for that
economy. Economic factors include inflation, interest rates, exchange rates, economic growth,
etc. Foreign direct investment is also included by sector for which this analysis is carried out.

Social: These factors examine the social environment of the market and measure determinants
such as cultural trends, demographics, population analysis, etc. One example is buying trends in
Western countries such as the United States, where demand is high during the holiday season.
Technological: These factors relate to technological innovations that may have a favourable or
unfavourable effect on the industry and the market. This relates to automation, research and
development and the importance of the technological awareness of a market.
Law: These factors have both external and internal sides. Some laws affect the business
environment in a country, while some companies apply specific policies. The legal analysis takes
both aspects into account and then uses the strategies in the light of this legislation. For example,
consumer laws, safety standards, labor laws, etc.
Environment:These factors include those that affect or are determined by the environment. This
aspect of PESTLE is crucial for some industries, including tourism, agriculture, agriculture, etc.
Environmental include, but are not limited to, climate, weather, geography, global climate
change, environmental impact, etc.
BCG MATRIX:
The Boston Consulting Group (BCG) matrix is a 4-cell matrix (2 * 2 matrix) developed by BCG
in the United States. It is the best-known tool for analysing company portfolios. It provides a
graphical representation of an organization looking at different companies in their portfolio
based on their market share and industry growth rates. This is a two-dimensional analysis of
strategic business unit (SGE) management. In other words, it is a comparative analysis of
business potential and environmental impact assessment. Under this matrix, companies could be
considered high or low depending on their industry growth rate and relative market share.
Relative market share = SGE sales this year-leading the sales of competitors this year.
Market Growth Rate = Sector sales this year - Sector sales last year.
The BCG matrix consists of four cells, with the horizontal axis indicating the relative market
share and the vertical axis the market growth rate. The centre of relative market share is 1.0. If
all SBUs belong to the same sector, the average growth rate of the sector is used. If, on the other
hand, all SBUs belong to different sectors, the focus will be on the growth rate of the economy.
The assignment of resources to functional units is based on their location in the grid. The four
cells in this matrix were called stars, cows, question marks, and dogs. Each of these cells
represents a company.
IMAGE (RELATIVE MARKET SHARE)
1. Stars: They represent business units - a significant market share in a growing industry. They
can generate revenue, but due to the rapid growth of the market, the stars need huge investments

to keep their lead. Net cash flow is generally modest. The SBUs in this cell are attractive because
they belong to a robust industry sector and these businesses are very competitive in this sector. If
a star succeeds, he becomes a cash cow as the industry grows.
2. Cash Cows: They commercial units that have a significant market share in a slow-growing,
mature sector. Cash cows require little investment and generate cash that can be used to invest in
other businesses. These strategic operating entities are the company's primary source of liquidity
and its core business. They are the basis of an organization. These companies generally pursue
stability strategies. As cash cows become less attractive and worsen, a cost-cutting policy can be
pursued.
3. Question Marks- They represent business units with low relative market share and located in a
high-growth sector. They need huge sums of money to hold or gain market share. They need
attention to see if the business can be profitable. Question marks are usually new products and
services with a good business perspective. No specific strategy can be adopted. If the company
believes it has a dominant market share, it can apply an expansion strategy, otherwise an
expenditure reduction strategy can be used. Most businesses start with a question mark as they
try to enter a fast-growing market where there is already market share. If question marks are
ignored, question marks can turn into dogs, and when large investments are made, they can
become stars.
4. Dogs: They represent companies with low market shares in growth markets. They do not
generate money and do not require large sums of money. Due to their low market share, these
businesses face cost disadvantages. In general, staff reduction strategies are used as these
companies can only gain market share at the expense of their competitors or competitors. Their
market share is low due to high cost, poor quality, inefficient marketing, etc. If a dog has no
other strategic goal, it should be liquidated if it is less likely to gain market share. The number of
dogs should be avoided and minimized in an organization.
Boundaries of the BCG Matrix:
BCG Matrix provides a framework for allocating resources to different business units and allows
you to compare multiple areas at a glance. However, the BCG matrix is not constrained because
• The BCG matrix classifies companies in ascending or weak order, but companies can typically
be average. Thus, the true nature of the business cannot be reflected.
• The market is not clearly defined in this model.
• A high market share does not always lead to high profits. High costs are also associated with a
high market share.
• Growth rate and relative market share are not the only indicators of profitability. This model
ignores and ignores other profitability indicators.

• Sometimes dogs can help other companies to gain a competitive advantage. Sometimes they
can even earn more than cash cows.
• This four-cell approach is considered too simplistic.
THE MATRIX GE MCKINSEY:
The GE McKinsey matrix is a nine-field matrix used as a strategy tool. It helps cross-enterprise
companies to evaluate their business portfolios and systematically prioritize investments from
different business units. This technique is used in brand marketing and product management. The
analysis helps companies decide which products to add to a product portfolio and which other
opportunities should continue to be invested. Although the GE version, like the BCG matrix, is
much more complex. The analysis begins with a two-dimensional portfolio matrix. However, the
dimensions are multifactorial: nine indicators of the attractiveness of the sector and twelve
indicators of the strength of the company. The business world is increasingly focusing on their
investment decisions as resources become increasingly scarce. Any decision must be to make the
best possible use of investment and aim to make the most of this investment. For diversified
companies, the battle over resource allocation is becoming even more complex as multiple
products, brands and portfolios need to be managed. This matrix helps companies make these
decisions in a more systematic and informed way.
IMAGE (GE MCKISNEY MODEL)
UNDERSTANDING MATRIX
The matrix represents a 3 × 3 grid. The Y axis measures the attractiveness of the market, while
the X axis measures the strength of the company. The scale is high, medium and low.
Some important steps are required to create this matrix:
• List the entire product range created or sold by a strategic business unit.
• Identify the factors that make a market attractive.
• Assessment of the position of the strategic business unit in the market.
• Calculate the strength of the company and the attractiveness of the market.
• Determine the category of strategic business unit: high, medium or low.
Attractiveness of The Market:
This dimension enables the attractiveness of the market to be determined by analysing the
benefits a business can gain through market entry and competition. Several factors are examined

in this analysis. These include the size of the market, its growth rate, profit potential and the
nature, size and weakness of competition within the industry.
Among the factors used to determine the attractiveness of the market are:
• The Long-Term Growth Rate
• Industry Risk
• Profitability of The Industry (Barriers to Entry, Exit Barriers, Supplier Power, Purchasing
Power, Substitution, Etc.)
• The Structure of The Industry
• The Product Life Cycle
• Demand
• Price Trends
• Work
• Market Segmentation
• Strength Commercial / Competitive
The other major dimension of this network is the competitive or commercial strength of the
business. A rating of this dimension helps to understand if a company has the skills to compete in
17 a marketplace. This can be determined by internal factors such as assets, market share and
changes in market share, brand position and loyalty, creativity, change management and market
fluctuations. It can also be determined by external factors such as environmental concerns,
government regulations and laws, energy consumption, etc.
Several factors can determine this market / competitive strength
: • Overall Market Share
• Growth of Market Share Compared to The Competition
• Brand Strength
• Business
• Profitability
• Customer Loyalty

• Value Chain
• Differentiation of Products
Investment Strategies After drawing the chart, you can create investment strategies based on the
box in which the strategic business unit is located.
The three options are:
• Growth - Business units in this category attract the company's investments as they can generate
high returns in the future. Investments include research and development, acquisitions,
advertising and brand expansion, and production capacity.
• Selectivity - These businesses are in an ambiguous position and it is unclear whether they will
grow or stagnate. Investments in this category can be made if the money has already been
invested in "growth" units and if a strategic target has been set for these units.
• Harvesting units in this category may underperform and belong to less attractive industries and
markets. Investments are invested in them when they generate returns that correspond to these
investments.
Limitations:
• The attractiveness of the industry and the strength of the business can only be determined
precisely by a consultant or an experienced person.
• The entire exercise can be expensive for a company.
• Synergies and potential dynamics between two or more business units are not considered.
• The weighting of the various factors can be very subjective since there are no rules to
determine them.
D1 Critically evaluate specific options and pathways for growth, considering the risks of each
option and how they can be mitigated.
PESTLE Analysis of ABC COFFEE HOUSE:
The macroeconomic environment in which ABC COFFEE HOUSE is developing is
characterized by the current global economic situation, which has weighed on consumers'
purchasing power. However, a recent market survey has shown that consumers have not reduced
their coffee consumption and opt for cheaper alternatives. This means that ABC COFFEE
HOUSE can continue to use consumers' purchasing power in a way that gives them a significant
advantage over their competitors by offering cheaper alternatives. In addition, Indian consumers
are increasingly turning to "moralism chic," which means that the products they buy and the
brands they consume must demonstrate that they meet social and environmental standards in

their manufacture. This is the main challenge facing ABC COFFEE HOUSE when it comes to
meeting the challenges of the new age of consumer awareness and the rampant smartphone
revolution.
Political:
ABC COFFEE HOUSE's main policy mandate is concern for the supply of raw materials, which
has attracted the attention of the politicians of the country and the places from which it sources
its raw materials. For this reason, ABC COFFEE HOUSE is committed to upholding social and
environmental standards and pursuing appropriate procurement strategies that are consistent with
agreed "fair trade" practices. The other political imperative that ABC COFFEE HOUSE faces is
the need to respect the laws and regulations of the country. This was necessary through activism
and increased political awareness in the privileged locations that underpin ABC COFFEE
HOUSE's supply strategies. The third political imperative for ABC COFFEE HOUSE is the
regulatory pressure exerted on the domestic market as the business processes facing India-based
multinational companies are now more closely scrutinized.
Economical:
ABC COFFEE HOUSE's main external engine is the current global economy, which has
impacted many companies' profitability. However, studies have shown that consumers, instead
of reducing their coffee consumption, choose cheaper alternatives, which represents an
opportunity for ABC COFFEE HOUSE. Of course, the company continues to face rising labor
and labor costs, as the inflationary macroeconomic environment coupled with declining
profitability reduces costs on both sides of the spectrum.
Socio-Cultural:
Although ABC COFFEE HOUSE can offer cheaper alternatives, this must be done without
sacrificing quality. This is the company's most important socio-cultural challenge, as it extends
its consumer base to low and middle-range consumers. the income pyramids. Apart from that,
"green" and "ethical" consumers worried about the social and environmental costs of the brands
they consume mean that ABC COFFEE HOUSE must be aware of this trend. Third, the retired
generation of baby boomers means that spending by older consumers is likely to decline
gradually and that ABC COFFEE HOUSE must ensure that Gen X and Millennials are used as
part of its strategy.
Technological:
ABC COFFEE HOUSE is well positioned to reap the benefits of the emerging mobile wave. She
can expect to surf the mobile wave easily. The company has already introduced Wi-Fi
capabilities in its stores so consumers can surf the Internet and do their jobs while they drink
coffee. This indeed adds value to the ABC COFFEE HOUSE brand and enhances the customer
experience.
Legal:

ABC COFFEE HOUSE must ensure that applicable laws and regulations are not violated in the
countries from which the raw materials are sourced, as well as on the domestic markets.
Environmental
and consumers expressed concern about the business practices of ABC COFFEE HOUSE. As a
result, ABC COFFEE HOUSE must respond to these concerns in order to maintain the
confidence it places in its consumers.
Conclusion:
The above analysis shows how ABC COFFEE HOUSE works in a relatively stable external
environment. The main reason being that it is active in the food and beverage sector, which
means that despite this situation, consumers reduce their consumption to some extent, but not
completely. Therefore, ABC COFFEE HOUSE's mission is to cut costs and increase value to
maintain the customer base and build loyalty.
IMAGE(ABC COFFEE HOUSE)
Porter's Five-Forces framework, developed by Michael Porter (1979), represents five individual
forces that determine the overall level of competition in the industry. These forces are shown in
the following figure:
• The bargaining power of ABC COFFEE HOUSE suppliers cannot be undermined. ABC
COFFEE HOUSE works with many suppliers in the city and the importance of doing business
with ABC COFFEE HOUSE for each supplier is paramount given the volume of orders.
• The conversion costs for the largest coffee retailer in the country are not very high. ABC
COFFEE HOUSE can replace suppliers, and these factors further reduce the bargaining power of
suppliers.
• Most cafes are traded on the commodities market. The rivalry between existing companies is
tough. ABC COFFEE HOUSE competes with specialty cafes and fast food restaurants.
• ABC COFFEE HOUSE faces competition from CCD, Costa, Caribou Coffee, McDonald's,
Dunkin Donuts, Ready-To-Eat and thousands of local cafes and cafes.
• Despite fierce competition in the coffee chain industry, ABC COFFEE HOUSE is clearly the
market leader in the city with a market share of almost 40%, followed by CCD Inc., which holds
around a fifth of the market share. Market share. • The bargaining power of ABC COFFEE
HOUSE buyers is important. ABC COFFEE HOUSE buyers derive their bargaining power from
the abundance of competition and choice.

• The high sensitivity of consumer prices in the coffee chain industry is an indication of the
importance of buyer bargaining power.
• In addition, customers in the coffee chain do not pay any conversion fees, and buyers possess
comprehensive information about the products and services offered in the industry.
Summary and Recommendations: Analysis of the five forces of Porter by ABC COFFEE
HOUSE
Summary
The strength of the competition is the combined effect of the external factors identified in this
fiveforces analysis. In this regard, the key strengths of ABC COFFEE HOUSE Coffee
Company's strategic thinking are competitiveness, customer bargaining power and the risk of
replacement products. Nevertheless, the other forces influence the performance of the company.
In summary, the following intensities are five forces in the environment of ABC COFFEE
HOUSE are:
• Competition—Strong Force
• Power of customers of bargaining-- Strong Force
• bargaining power of Suppliers-- Weak Force
• Threat of Substitutes-- Strong Force
• Threat from new entrants-- Moderate Force
Recommendations:
In general, the strategic goal of ABC COFFEE HOUSE, based on the results of Porter's Five
Forces analysis, is to address the external environment of companies. It must therefore aim to
maximize the strengths and related capabilities of the coffee sector. For example, the company
can implement strategies to strengthen its brand. This recommendation aims to combat the
strength of competition, the strong bargaining power of buyers and the high risk of substitution.
In terms of competition, it is recommended to strengthen the competitive advantage of ABC
COFFEE HOUSE Corporation. For example, the company can improve the diversity of its
supply chain to improve access to resources and production stability. It is also recommended that
ABC COFFEE HOUSE reinforce its marketing aggression to attract and retain more customers.
ABC COFFEE HOUSE SWOT Analysis:
ABC COFFEE HOUSE is a recognized coffee and beverage brand that has grown rapidly in all
the city's major markets. The company has an advantage over its closest competitors, including
Barista and other emerging competitors. In fact, ABC COFFEE HOUSE is so well-known
throughout the city that it has become a household name for coffee.

Strengths
• The main strength of ABC COFFEE HOUSE is the strong financial performance that has made
it the largest coffee and beverage retailer in the city
. • The company has a value of more than $ 4 million, which is a big advantage over its
competitors.
• The intangible assets of ABC COFFEE HOUSE include the unmissable appeal of consumers.
Because of its brand, its symbol of excellence, and its affordable quality, the company occupies a
dominant position in the city for coffee and coffee. Beverages.
• The company is the largest coffee shop in the city due to its size and high volume. The
company can afford to sell its premium and midrange products to attract more consumers
. • ABC COFFEE HOUSE has created a positive and welcoming workplace for its employees,
which translates into happier employees, serving customers in a superior manner and generating
a general value for the company.
Weaknesses:
• The company is heavily dependent on its main use, namely coffee beans. It is therefore highly
dependent on the price of coffee beans as a determining factor in their profitability. This means
that ABC COFFEE HOUSE is overly sensitive to price fluctuations on coffee beans and
therefore needs to diversify its product range to reduce the risks associated with this dependency.
• The company has recently been criticized for its buying practices as many social and
environmental activists denounce unethical buying practices. In addition, the company was 25
accused of violating the "Fair Trade Coffee" principles introduced a few years ago to address this
problem.
• The company classifies their high-end products in the average market categories they prefer
from the budgets of many active consumers and other coffee shops promoting McDonalds rather
than ABC COFFEEHOUSE.
• The company needs to diversify its product range immediately to keep up with competitors
such as McDonald's and Burger King in the fast-growing breakfast segment. Take a bite and
have a drink to bring home.
IMAGE (SWOT)
Opportunities

• The company can expand its supplier network and expand the supply of suppliers from which it
can diversify its input sources without exposing itself to imaginative suppliers. In addition, it
would help the company to be less sensitive to the price of coffee beans and make it resilient to
supply chain risks.
• The company has a great opportunity to wait for its expansion into emerging markets. With a
thousand consumers likely to reach the pool of those who want instant coffee and breakfast in the
city, the company can expand into these and other emerging markets, a lucrative opportunity to
capitalize on them.
• ABC COFFEE HOUSE can also extend its product offering to all food and beverage retailers
such as McDonald's and Burger King, as the extended consumer segment will provide more
business opportunities at ABC COFFEE HOUSE.
• The company can significantly expand its network of elite retail stores to increase its market
share and increase the number of consumer segments. This possibility is linked to the other
options described above, which result from expanding into new markets, diversifying into new
consumer segments and increasing the presence across the country.
Threats
• The company is threatened by rising coffee prices and risks related to the supply chain caused
by price volatility in this critical input. In addition, higher dairy prices have a negative impact on
the company, which further jeopardizes profitability.
• The company is plagued by trademark and copyright infringement by lesser-known competitors
seeking to build on its success. Like other multinational emerging retailers, ABC COFFEE
HOUSE has filed lawsuits against those who abuse its brand and its famous logo. • The company
faces intense competition from local coffeeshops and specialty stores, making it cost-effective to
move away from niche consumption segments. In other words, the company is facing a major
challenge through local businesses that are frequented by loyal customers who do not like big
brands.
• ABC COFFEE HOUSE needs to enter emerging markets as the developed markets it
traditionally relies on are saturated. Given that current conditions have made the situation
difficult for many retailers, this aspect is subject to significant threats.
• Finally, because of its global supply chain, ABC COFFEE HOUSE faces significant challenges
and is subject to disruptions in the supply chain due to global or local conditions.
P2 Evaluate the opportunities for growth applying Ansoff’s growth vector matrix.
Ansoff Matrix
Well-known management expert Igor Ansoff has created a roadmap for business growth as they
introduce new products, integrate into new markets or combine these two options. This roadmap

was presented as a four-quadrant matrix, with the product and market axes being the
determinants of the strategies. As shown in the illustration in this section, the combinations of
the two axes provide companies with options to look for market shares.
IMAGE(INCREASING RISK)
The four quadrants involve increasing the share through Market Penetration, offering in new
markets with existing products or Market Development, offering new markets new products in
existing markets through Product Development; and finally, diversification, as companies enter
new markets with new products.
Market Penetration
It occurs when existing products are used to increase the share of the corporate market. This is a
minimum risk strategy as a company only needs to increase its marketing efforts and increase its
market share. In other words, the company needs to ensure that it uses the existing capabilities,
resources, and tools to develop a growth-oriented strategy. However, market penetration has its
limits, and these manifest when the market is saturated and, as a result, product growth is slower.
Examples of market penetration include TV channels and media houses trying to maintain their
existing features in existing markets and ensure their growth due to the growing market size.
because they delivered a higher value proposition than their market. The competitors are.
Market Development
If companies want to open new markets with their existing products, the market will develop.
This is suitable for companies that have the skills and resources to enter new markets in search of
growth. In addition, the company's core competencies must be product-driven rather than
marketdriven, and the company must seize opportunities for its existing products in new markets.
The market development is riskier than the market penetration, as the company advances into
unknown waters. Therefore, it is in his interest to take the necessary care before entering new
markets. Mobile phone companies such as Vodafone and Nokia, which are entering African
markets, are examples of market developments in which these markets have not yet been tapped
and where these companies can leverage their existing expertise to penetrate these markets.
Product Development
When companies want to introduce new products into existing markets, product development
takes place. This strategy can be successful if companies have already established themselves in
existing markets and only need to bring new products to market that exploit the brand image and
value of the brand and meet customer expectations of existing markets. For example, when
consumer giants such as Unilever and Proctor and Gamble (P & G) introduce new products into
existing markets, they benefit from a strong brand value and a high-quality recall to remind
customers of what would help them gain the market. Share. Compared to the two previous

strategies, this strategy is riskier 29 because it is uncertain whether the transfer of customers
from existing products to new products is as transparent as the company's strategists believe.
Diversification
When companies introduce new products into new markets, there is a diversification that
includes both the development of new products and the development of new markets. This is the
riskiest strategy of the four quadrants of the Ansoff matrix. In fact, companies are not only
testing waters in unknown territory, but are also launching new products that are well received
by customers. Diversification is indeed a risky strategy that is justified only if the likelihood of a
return on business is high. Examples of diversification include companies like Reliance, which
operate in the mobile and retail segments, not only having to break away from their core
competencies, but also introduce new products for the new customer segment. Management
experts recommend diversification only if companies have enough cash and other resources, as
they need lots of ways to stay on track until the profits are made. In addition, they recommend
companies to build customer loyalty and retention, as a cross-segment migration only occurs if
the customer is guaranteed good value for money. For example, the TATA group in India is
considered cheap, which has helped it gain market share by diversifying into new markets and
new products.
Conclusion
It is imperative that companies grow, otherwise their resources do not generate the return that
companies need to generate profits and generate value for their shareholders. In addition,
companies need to continually look for ways to increase their market share, which would help
them create value for their stakeholders. The Ansoff matrix has become so popular because it
describes the strategies companies must follow for each option. It is still a combination of current
business skills and the potential for new growth. driven by the market. In summary, the Ansoff
matrix is very useful in times of recession as it can be used by any company that wants to expand
into new markets or use its existing capabilities.
M2 Evaluate potential sources of funding and justification for the adoption of an appropriate
source of funding for a given organisational context.
D2 Critically evaluate potential sources of funding with justified argument for the adoption of a
source or combination of sources, based on organisational needs.
Corporate Financing
Financing needs
Every new company must be financed. Therefore, entrepreneurs must decide where to get
funding, how to invest and how much to borrow. In fact, one of the key concerns of
entrepreneurs is knowing where and how to get the money to start their projects and work.

Factor Influencing the Choice of a Corporate Funding Source
A company needs to select a suitable funding source for a new project, since there are three main
problems:
1. Can financing be from internal resources or should new funding be required? Generated
outside the company?
2. If capital requirements to be arranged outwardly, should it be liability or ownership? 3. If debt
or equity is to be used, where and how?
Can the Required Funds Be Provided from Internal Sources? To answer this question, the
company needs to consider several issues:
• How much money is currently being held? The entity must consider the amount of current cash
and short-term investments and the amount needed to support existing activities. If funds are
available, this is the most obvious source of funding for the new project.
• If the required means of payment cannot be provided in this way, the company must consider
future cash flows.
• If the company's expected cash flows are insufficient to finance the new project, it may
consider strengthening working capital controls to improve its liquidity position.
Debt or equity decision
Here, a company must consider how much it should lend. This is a very important decision and
several British companies have had major problems in recent years, including Marconi, British
Telecom and NTL. Points to consider are:
• The cost of financing. Debt financing is usually cheaper than equity financing. In fact, from the
perspective of the lender, leverage is safer. Interest must be paid before the dividend. In the case
of a liquidation, the debt is repaid before the equity. This makes debt a safer investment than
equities, and forced investors therefore demand a lower return than equity investors. The interest
on the debt is also deductible from corporation tax (as opposed to dividends on stocks), which
makes it even cheaper for a company that pays taxes. Arrangement costs are generally lower for
debt than for equity financing and, unlike the cost of equity arrangements, are tax deductible.
• The current capitalization of the company. Although debt is attractive because of its low cost,
the downside is that interest must be paid. If an excess amount is lent, the company may not be
able to afford the interest and principal payments and a liquidation could follow. The amount of
borrowing by a company is usually measured by the leverage ratio (leverage ratio) and
companies must ensure that it does not get too high. Comparisons with other companies in the
industry or recent company history are helpful.

• Security available. Many lenders must pledge assets to secure their loans. Good assets such as
land and buildings, unlike intangible assets such as capitalized research and development,
provide security for borrowing. In the absence of good asset security, another borrowing may not
be an option.
• Business risk. The corporate risk relates to the volatility of the operating result. Companies
with very volatile operating income need to avoid a high level of borrowing, as they may end up
in a situation where operating income may decline, and interest rates cannot be borne. High-risk
companies are usually funded by equity because there is no legal obligation to pay for a stock
dividend.
• Operating Gearing. The operating ratio refers to the proportion of operating costs of a firm that
is fixed and not variable. The higher the fixed cost, the higher the operating mechanism. High-
performing companies typically have volatile operating profits. In fact, fixed costs remain the
same regardless of sales volume. If sales rise, the operating result continues to increase.
However, if the sales volume decreases, the operating result continues to fall. In general, it is a
high risk to link a high financial to a functioning transmission. Highly functional transmissions
are common in many service industries where many operating costs are fixed.
• Dilution of earnings per share (EPS). Significant stock issuance may result in a dilution of
earnings per share if the value of new investments does not materialize immediately. This could
embarrass the shareholders and cause a price decline.
• Voting Control. A large issue of shares to new investors could change a company's voting
control. If the founders hold more than 50% of the capital, they may hesitate to sell new shares to
outside investors as their voting rights in the general meeting may be lost.
• The current state of the stock markets. In times of declining share prices, many companies will
be reluctant to sell new shares. They believe that the price received will be too low. This would
dilute the wealth of existing owners. This does not apply to rights issues when shares are sold to
the current owners of the company. New issues of stocks on UK stock exchanges were rare in
recent years due to the bear market.
The last important decision is what kind of funding should be used and where it should be raised.
Equity Financing
• For companies that already hold shares in the form of emission rights, emissions are
compulsory under corporate law. This means that new shares must be offered to existing
shareholders in proportion to their existing holdings. This is intended to protect the existing
shareholders of the company, which sells shares at low prices to new investors, and dilute the
assets of existing shareholders. This requirement may be waived if existing shareholders are
willing to vote "to waive their right of first refusal".
• The current status of the company is important. Companies listed on the London International
Stock Exchange or the Alternative Investment Market (AIM) may receive new equity financing

through the sale of new shares in these markets through subscription 33 rights, sales offer or
investments. For other companies that do not have access to the stock market, it is more difficult
to raise capital, and they may need to engage venture capital firms when they need equity.
Debt financing
Debt financing exists in various forms. The key factors to consider when raising new debt are
listed below.
Term of the loan
Short-term loans (loans with a term of less than one year) are generally cheaper than longer-term
loans (loans with a term of more than one year). Many lenders equate time with risk. The longer
they borrow, the bigger the risk, the more things can go wrong. As a result, they charge a higher
interest rate on long-term loans than on short-term loans. However, short-term borrowing has
one major drawback: the risk of renewal. Short-term loans must be renewed regularly, and the
company runs the risk that lenders refuse to extend the loan. This risk is highest for overdrafts
for which the Bank can demand on-demand overdrafts. In the case of a long-term loan, financing
is secured for the duration of the loan if the borrower does not comply with the borrower's note
loan. To choose between a short-term loan and a long-term loan, the company must consider the
principle of prudent financing: "Financing short-term investments with short-term funds and
longterm investments with long-term funds." It simply means that you must use low-cost short-
term loans when This can be done without hesitation (investments that are of a short-term nature
and therefore do not interfere with the risk of prolongation) but use long-term financing for long-
term investments.
Fixed v floating-rate borrowing
Many lenders offer the borrower a choice between a fixed rate and fixed rate bonds have the
power of certainty, but on average are more expensive and are exposed to higher risk in terms of
fixed income loans as they could lose as interest rates rise. Variable rate borrowing is generally
more favourable but carries a higher level of risk for the borrower, as the interest payable may
rise with rising interest rates. If a company is already heavily adjusted, it may find the risk of
variable borrowing too high.
The status of the company
Certain types of debt financing are only available to major listed companies. Small businesses
are generally limited to short-term loans. If a long-term debt financing is available, this is usually
done in the form of lease, leaseback, leasing or mortgage on a property.
Currency loan
It is important to remember that if a company borrows in a foreign currency, the loan and interest
in this currency must repay. Currency fluctuations can increase the cost of the loan and increase
the risks.

Debt covenants
Borrowing is often associated with borrowers' obligations beyond the repayment of interest and
principal. These are called alliances. These include restrictions on the use of assets financed from
the loan, restrictions on the payment of dividends and restrictions on future borrowings. These
clauses limit the flexibility of the borrower and must be carefully assessed before borrowing.
Conclusion It is not possible to recommend an ideal funding source for a project. It is important
that the students understand the advantages and disadvantages of the various financing methods
and can provide companies with expert advice.
Internal Funding Sources: Evaluation
• There are two general sources of finance for a business. Short-term sources of funding must be
repaid within 12 months. Long-term sources of funding can be repaid over several years.
• Within these sources, we may also have internal or external sources of funding. If we only look
at internal sources of funding, we talk about funds that are inside the company. An example of an
internal source of finance would be the profits that are withheld to finance an expansion of the
company's resources.
• This is compared to an external resource that would come from a lender or creditor. When
looking for sources of internal financing to meet short or long-term needs, there are several
advantages and disadvantages to consider.
Advantages of Internal Sources of Financing
1. It allows an organization to maintain complete control. If we use internal sources of funding,
we do not have the same repayment obligations as foreign debt. We do not have to worry about
whether this payment plan matches the revenue plan. The main requirement is to ensure that a
refund is made at a specific time. This means that we can plan our own refunds if financially
justified.
2. It improves the planning process. Companies are more cautious when planning new projects
when using internal or external finance. There is no illusion that we have money to use internal
sources of finance. We only spend the money that the company has earned or covered for a
project that is identical to the one planned. As a result, foreign spending is less likely to occur,
leading to positive consumer habits over time.
3. This reduces the total cost of most projects. When we use external sources of finance, loans
generate interest payments that can make borrowing more expensive. This also happens on an
individual level. Imagine buying an asset of $ 21,000. If we use internal sources of finance to
buy, we pay the costs and the transaction ends. Then, if necessary, we can reimburse the costs
from other budget lines on a monthly basis. With external sources and a 4% interest rate over a
six-year period, we would pay interest of nearly $ 10,000, which would not be required for
internal sources.

4. It improves the overall value of the business. Investors do not like to see a lot of foreign debt
in a company. High debt levels indicate a higher risk, which reduces the overall value of the
business. We will also see an improvement in the creditworthiness of the company, even if we
use less debt. Internal funding resources can sometimes make short-term spending difficult to
manage. However, over the long term, tackling the debt-to-equity ratio will always result in a
long-term financial recovery for most companies.
5. This limits external influences on the business. When we involve people outside the company
in the project, we give them some influence over the desired outcomes. Even though debt
financing is a bank that has nothing to do with the planning process, we need to prove to the
lender that the business plan is a low-risk way to make a profit. We must show that we can repay
the financing. This means that the decision is influenced by the need for repayment instead of the
needs of the company at that time.
6. It offers various sources of money that we need. Several internal sources of finance can be
beneficial to a business over time. The most common method is the use of retained earnings as
this does not result in dilution of ownership or control. We can also use the sale of assets to
finance projects that meet short- or long-term requirements. A reduction in working capital is
also possible, which streamlines operations while lowering bank charges.
7. The issue of additional equity is not required. External financing almost always requires the
issuance of additional equity in the company, unless we are in debt. This means that the
ownership structure of the company is diluted. Internal funding sources eliminate this problem.
Disadvantages of internal sources of financing
1. This can have a negative impact on the operating budget.
Since we use internal sources for funding purposes, this money must come from somewhere. For
most companies, this means withdrawing cash from their capital or operating budget. This means
that we have less money available for managing daily expenses. For this reason, most companies
use internal funding sources only for short-term projects. In this way, the budget receives a ROI
as soon as possible.
2. This requires accurate estimates in order to be effective.
If internal funding sources are used for a project, the cost estimates must be sufficiently precise
for this funding option to be effective. We need to be able to determine the actual cost of the
work and make accurate forecasts to understand how the investment pays off over time. Accurate
estimates are also required to calculate the expected returns required for future budget planning.
3. There can be fewer tax benefits for the organization.
If a company uses debt financing for its projects, the resulting debt may have certain tax benefits
that domestic financing cannot provide. Although tax laws vary from country to country, most
companies can deduct the interest they pay on their foreign debt. Depreciation of assets is also

available for purchases. This means that a company with a high tax rate often shuns internal
sources of finance whenever possible.
4. This requires discipline. Not because we have internal money, we must spend it.
For internal financing to be effective, a company's software suite must be highly self-disciplined.
Without strict budget control, project costs and benefits, it can be very easy for a business to face
financial problems. If there are problems with internal funding sources, a company often turns to
foreign debt to solve the problem. This leads to more debt than would have been necessary if
external funding had previously been used.
5. The completion of projects may take longer.
With external funding sources, we can immediately raise all the necessary funds for the project.
So, we can start immediately and reduce delays. For internal sources of finance, access to finance
can sometimes be limited. We may need to raise the funding level before we can start the project.
There is a risk that new business opportunities will be missed as the focus is more on the
development of domestic financing.
6. This can lead to some companies withdrawing their cash departments.
Some companies will also spend too much money on projects with internal funding. In this case,
money may be withdrawn from some parts of society. Without enough money, even if it is just a
department, it will be harder for the company to stay healthy.
7. This limits the amount of external information available.
Although external sources of financing can incur additional costs, we can collect the ideas of
many others if we decide to go into debt. This information can be extremely useful to the
business as it offsets the total cost of using external finance instead of internal financing. When
we run a project that requires know-how that we do not have internally, internal sources of
finance are generally not a good option.
8. This increases the risk of insolvency for some companies.
If a company decides to reduce working capital as the best source of internal funding, then it is
more likely to be insolvent. When working capital is very low, unexpected costs are enough to
become the turning point for financial health. For this reason, the sale of certain assets may be a
better option, even if the useful life of the asset still has an internal value, as this does not affect
the risk of insolvency and reduction of working capital. The advantages and disadvantages of
internal sources of financing allow companies to stay in control and limit their overall costs. This
also means that in the case of a problem less knowledge must be acquired and additional risks to
the budget exist. In most cases, it is generally beneficial to avoid debt. Sometimes exploration for
limited foreign debt can be beneficial. For that reason, all options should remain on the table
while a financing decision is made.

P3 Assess the potential sources of funding available to businesses and discuss benefits and
drawbacks of each source.
SOURCES OF FINANCING
Sources of finance for corporations include equity, loans, unsecured debt, retained earnings, term
loans, working capital loans, letters of credit, euro issues and equity financing risk, etc. These
sources of funding are used in different situations. They are organized according to period,
property, control and source of production. It is ideal to evaluate every source of capital before
you decide. Sources of capital are the most explosive area, especially for entrepreneurs who are
about to start a new business. This is perhaps the hardest part of all efforts. There are different
capital sources that we can classify according to different parameters. Choose from the right
source and the right combination of funding is a big challenge for any financial manager.
Choosing the right source of funding requires a thorough analysis of each source of funding. To
be able to analyse and compare the sources, all the characteristics of the sources of funding must
be known. There are many features that classify funding sources. The sources are classified on a
periodic basis as follows: long-term, medium-term and short-term. Property and control classify
the sources of capital finance held and borrowed. Internal and external sources are the two
sources of capital generation. All sources have different characteristics to meet different
requirements.
TIME PERIOD
Sources of funding for a business are classified according to the period for which the money is
needed. The period is normally divided into the following three areas:
Long Term Financing
Long term financing refers to capital requirements for a period of more than 5 years at 10, 15, 20
or more years, depending on other factors. Capital expenditures such as plants and machinery,
land 40 and buildings, etc. Companies are financed from long-term sources of finance. Part of
the working capital remaining in the business is also financed from long-term sources of finance.
Long-term funding sources, in one of the following forms:
• Equity or Equity Shares
• Retained Earnings or Internal Provisions
• Preferential Shares
• Debt
• Debentures
• Loans Financial Institutions, Governments and Commercial Banks

• Risk Financing
• Securitization of Assets
• International Funding by Issuing Euro, Foreign Currency Loans, ADR, GDR Etc
Medium
Term Medium-term financing refers to financing over a period of 3 to 5 years and is used for two
reasons in general. Firstly, if there is currently no long-term capital available, and secondly, if
accrued income is incurred, e.g. For example, advertisements that must be written off over a
period of 3 to 5 years. Medium-term funding sources may take one of the following forms:
Preferred or Preferred
• Stock Preferred Securities Debentures Bonds
• Medium-Term
• Financial Institutions
• Government and
• Commercial
• Banks Loans Financing
• Leasing
Short-Term
Short-term funding refers to funding for less than a year. The need for short-term funding
appears to finance a company's current assets, such as stocks of commodities and finished
products, debtors, minimum liquidity and bank deposits, etc. Short-term financing is also
referred to as working capital financing. Short-term financing is available in the form of:
Loans · short-term loans such as working capital loans from commercial
• Banks · fixed-term deposits with a term of up to 1 year
• Advances received from customers
• Creditors
• Debt

• Factoring services
• Billing discounts, etc
BY PROPERTY AND CONTROL:
Sources of funding are classified according to ownership and control of the company. These two
parameters are an important consideration in selecting a source of finance for the business. Each
time we bring in capital, there are two types of costs: the first is the compounding and the second
is the sharing of ownership and control. Some entrepreneurs may not like to dilute their property
rights in the business, and others may believe in risk sharing.
Owned Capital
equity also includes retained equity. It comes from the promoters of society or the public by
issuing new shares. Promoters start the business by providing the money needed to start a
business. Among the assets included:
• Equity
• Preference
• Retained earnings
• Sources of capital
• Convertible bonds ·
• Private
• equity funds or private equity
In addition, as the business grows and internal expenditures such. Income from companies, for
example, is insufficient to cover the financing needs, the choice of ownership capital or the
nonreal estate capital of the promoter. This decision is up to the organizers. The share capital has
the following advantages:
• It is a long-term capital, i.e. it remains permanently in the business.
• There are no interest or payments such as debt, so the risk of insolvency also decreases.
• For this reason, early companies prefer equity
Borrowed Capital
Borrowed Capital is funding from outside sources. These sources of funding include:

• Financial Institutions,
• Commercial Banks or
• The General Public in Debt Securities.
In this type of capital, the borrower encumbers the assets of the company, which means that the
company pays the borrower in the event of liquidation by selling the asset. Another feature of the
debt is the regular payment of fixed interest and the repayment of capital. Some advantages of
the loan are:
• There is no dilution in the property and in the control of the business.
• Borrowing costs are low as they are tax-deductible expenses that result in tax savings for the
company.
• This gives the company the benefit of leverage.
BY SOURCE GENERATION:
Depending on the source of production are the following internal and external sources of
funding:
Internal Source
The internal source of capital is the internal generated by the company. These are:
• Retained earnings
• Reduction or control of working capital
• Sale of assets etc.
The internal source of financing has the same characteristics as existing capital. The best part of
internal capital provision is that the business develops on its own and is not dependent on third
parties. The disadvantages of equity and debt are not given in this form of financing. Neither the
property watered down nor the risk of a firm obligation/bankruptcy.
External Sources
An external source of financing is that of generated outside the company capital. Except for the
internal funding sources, all sources are external sources. Choosing the right source of finance is
an important decision that financial managers must make at the highest level. The use of a bad
source increases the cost of the funds, which would have a direct impact on the feasibility of the
project. A poor match of the type of capital with the needs of the company can affect the smooth
running of the company. For example, if the assets that receive the benefits after two years are

funded at short notice, there will be a cash flow imbalance after one year, and the manager will
have to seek and repay new funds. the fees for fundraising.
Advantages of short-term loans
Fast approval
A short-term loan is suitable for people who need quick access to money. Like a payday loan, a
short-term loan application can be approved within a few hours depending on the lender. In some
cases, we have access to funds on the same day or the next business day.
We Pay Less Interest
The more we owe to the lender, the higher the interest generally paid. However, with a short-
term loan, we will repay everything in less time, which means we will pay less interest. We will
save even if the interest rate is higher than for long-term loans.
This can help us to improve our creditworthiness.
Unlike long-term loans, we have the luxury of choosing a short-term loan that suits your
circumstances. For example, if we had a bad credit history in the past, we can take out a short-
term loan of a few months to improve our credit rating. If we repay the loan in a timely manner,
the credit rating will improve.
Provides flexibility and reduces stress
These types of loans are convenient and flexible. We can always apply for a short-term loan as
most lenders have websites. We will also avoid the stress of having to pay more money to the
lender, and watch the accumulation of interest, which can lead to emotional and psychological
torture.
Disadvantages of short-term loans
These are high-cost loans.
Short-term loans usually have high interest rates and high monthly payments. Since we finance
the principal amount of the debt for a shorter period, we may have to pay a substantial amount
each month, compared to the amount we will pay to manage a long-term loan.
This can have a negative effect.
The creditworthiness. Although we can use a short-term loan to determine creditworthiness, the
consequences can be dire if we do not repay it on time. The new debt-to-income ratio and the
new high-cost loan will significantly reduce creditworthiness.
Can make us enter a credit cycle

The flexibility, convenience and easy availability of short-term credit can make us a seasonal
borrower. We can always borrow when we need money, which is risky but not good. This means
that in the end we can spend more than we can afford or waste a lot of money.
Advantages and disadvantages of long-term loans
• Debt is the most cost-effective long-term source of finance.
• Due to the deductibility of interest on the debt, it is the most cost-effective.
• Creditors or creditors view the debt as a relatively lower-risk investment and demand a lower
return.
• Debt financing offers enough flexibility in the financial / capital structure of the company.
• The flexibility of the capital structure of the Company may be increased by inserting a purchase
clause in the promissory note. • In case of overcapitalization, the company can buy the debt to
offset the capitalization.
• Creditors are creditors and do not engage in trading because they are not entitled to vote.
• The company can benefit from a tax savings on interest on the debt.
Disadvantages of long-term debt financing
• Borrowing costs are a permanent burden for the company. The company must pay interest to
fixed income creditors or creditors, regardless of whether it makes a profit or not. He is required
by law to pay interest on his debts.
• Debts usually have a fixed due date. As a result, the financial manager needs to schedule
repayment of the debt. • Debt is the riskiest long-term source of finance. The company must pay
interest and capital at a given time. If interest and capital are not paid on time, the business is
bankrupt.
• Debenture agreements may contain restrictive conditions that may limit the future operational
flexibility of the company.
• Only large solvent companies whose assets are collateralised can raise capital through long-
term debt.
From an investor perspective, debt securities generally offer stable returns. In the event of a
liquidation of the Company, the Shareholders will be paid before the preferred shareholders and
the ordinary shareholders. Bondholders are creditors; However, they do not participate in an
increase in sales of the company. Likewise, they have no voting rights.

P4 Design a business plan for growth that includes financial information and strategic objectives
for scaling up a business.
M3 Develop an appropriate and detailed business plan for growth and securing investment,
setting out strategic objectives, strategies and appropriate frameworks for achieving objectives.
D3 Present a coherent and detailed business plan that demonstrates knowledge and
understanding of how to formulate, apply and achieve business objectives successfully.
A Business Plan
• It is simply a "business plan" that can be for-profit, government or non-profit organization.
• A business plan can also represent a product line, a single product, a set of service products or
another part of a larger business unit.
• For private sector companies, the core of the business plan is a business model and strategy that
describes how and where the company wants to earn and spend money. All other parts of the
business plan come from the model.
• Business plans generally consider a "planning horizon" for a period of one to three years, which
is regularly expanded with reviews and updates.
• The business plans of different organizations vary somewhat in content and structure, but most
are focused on two basic types of questions:
1. What is the business's business in a year? Two or three years? (For example, what will the
financial situation look like at this point?) 2. How does the organization achieve desired
performance and create a stable financial position?
• Founders and owners usually develop a first business plan prior to start-up. They build the plan
by using it as a tool to support their requests for private equity or loans to start the business.
• Once the company is operational, the business plan becomes a living document that reviews
and revises at least quarterly.
• The business plan generally serves several purposes and includes the following:
1. Plan the financial future.
2. Identifies and measures the risks.
3. Describes the business model.
4. Identifies the most important assumptions.

5. Helps prioritize business goals
The Detailed Business Plan Outline:
1. 1 Objectives
1. 2 Mission
1. 3 The key to success
1. 4 Summary
1.4 Ownership
2.1 Ownership
2.2 History
3.1 Services
3.2 Summary of the Market Analysis
4.1 Market Segmentation
4.2 Target Market
4.3 Segment Strategy
4.4 Market Needs
4.5 Competition
4.6 Shopping
5.1 Competitive Atmosphere
5.2 Sales strategy
5.3 Sales Forecasts
5.4 Past Performance
5.5 Managerial Summary
6.1 Staffing
6.2 Financial Plan

7.1 Break-Even Scrutiny
7.2 Expected Result
7.3 Forecast cash flow
7.4 Expected Balance Sheet
7.5 Corporate Ratios
Coffee House Couch and Breakfast: Couch and Breakfast Business Plan
The long-term goal of Coffee House Couch and Breakfast is to become the best choice for
temporary accommodation in City Island, India, and to create a sophisticated experience that
takes advantage of the personal service and historical character of the building. Coffee House
and its unique location in one of the most attractive parts of the Northeast. We plan to be more
than just a great couch and Breakfast. We plan to create a luxury deluxe environment that is
above the city's standard price. By expanding our visibility over the Internet and publicizing the
island with people who have not yet discovered this paradise, we can achieve above-average
occupancy rates and above-average profits. the average.
The Enterprise
Coffee House Couch and Breakfast is an established C & B and has been operating for three
years. After the acquisition and a short establishment phase, Coffee House will divide itself into
other business units to ensure a steady flow of customers (tourists and locals) through its doors.
Coffee House Couch & Breakfast is a partnership owned in equal parts by ABC Inc. The
company's CMD, Mr. James, will live on the property, manage and maintain the business, and
meet City Island's licensing requirements.
The Services
Built in 2000, Coffee House Couch & Breakfast is said to be one of the three train stations in
City Island connecting the island to Andaman & Nicobar. The building was repeatedly restored
and used since the end of the train operation. After completion of the construction work, four
rental units can now be created whose owners can occupy an unused space. Creating a "home
away from home" home that is often nicer and more luxurious than the one from which it
originates will ensure the return of many clients. In addition to information about these locations,
we plan to work with travel agents and companies in the region by offering packages and
preferential rates. While the C & B opens in high season, we plan to extend our services to the
city's residents in time for the low season. Side rooms open to create a large space ideal for
formal or informal gatherings (e.g. wedding receptions, office parties, Christmas parties, etc.).
The Market

B & Bs and other short-term accommodations on City Island are an important part of island
tourism. Ten of the short-term housing units in City are classified in hostels, 19 in long-term
leases (rentals, condominiums and homes) and only four in C & Bs, including the Coffee House.
The hotels / motels make up the largest percentage of rental properties on the island in terms of
units. A modest forecast for rent increases is 30% per year. The competitors on the islands have
increased rents on average by at least 30% over the past three years and are forecasting a 50%
increase over the next two years to reach full capacity. This forecast does not lead to a significant
increase in advertising or awareness but is based on the average increase in tourism. Our two
main client segments are Northern tourists, who traditionally prefer the warmth of C & Bs, and
local customers who need facilities for various events. Subscriptions to various web services
provide potential customers with an international exposure for an annual protection fee.
Financial considerations
The Coffee house is purchased through a Small Business Administration (SBA) loan (CDC 504
Loan Program), with buyers granting a 20% discount, SBI 50% and SBA 30%. We are assuming
an initial investment of $ 12,000 in operating costs. We estimate the average monthly fixed costs
at approximately $ 8,000 for expenses plus interest. Peak and non-productive times will have a
51 significant impact on monthly sales. In the first year, seasonal revenues will offset losses
outside the season. As Coffee House C & B strengthens its market position with local customers,
we believe that off-season sales will be enough to break the break even this season.
1.1 Objectives
• To become the preferred Coffee House for all the age groups.
• Show an average minimum occupancy of 65% in the first year.
• Increase distribution and marketing through Internet technology and direct mail in the northern
regions of India.
• With incentives and an increased presence on the Internet, we hope to increase the offseason
occupancy by 30% in the first year.
• Increase low season usage by investing in other uses of the property (receptions, receptions,
weddings, etc.).