Planning for Growth - Assignment PDF

1
TABLE OF CONTENTS
1. Executive Summary 3
2. P1 Analyse key considerations for evaluating growth opportunities and justify these
considerations within an organisational context.
M1 Discuss the options for growth using a range of analytical frameworks to
demonstrate the understanding of competitive advantage within an organisational
context.
4
3. D1 Critically evaluate specific options and pathways for growth, considering the risks
of each option and how they can be mitigated.
19
4. P2 Evaluate the opportunities for growth applying Ansoff’s growth vector matrix. 27
5. 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.
30
6. P3 Assess the potential sources of funding available to businesses and discuss benefits
and drawbacks of each source.
39
7. 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.
47

2
D3 Present a coherent and detailed business plan that demonstrates knowledge and
understanding of how to formulate, apply and achieve business objectives successfully.
8. P5 Explain exit or succession options for a small business explaining the benefits and
drawbacks of each option.
69
9. M4 Evaluate exit or succession options for a small business comparing the options and
making valid recommendations.
D4 Provide critical evaluation of the exit or succession options for a small business and
decide an appropriate course of action with justified recommendations to support
implementation.
73
10. Bibliography and References 76

3
EXECUTIVE SUMMARY
The purpose of this report is to:
• Assess the different ways the organizations raise capital from and the factors determining
the types of capital to be used.
• Develop a business plan (with financial statements) and to define the way we plan to
expand our business.
• Assess the numerous conducts in which a small company can exit the business and the
consequences of each option can be.
Objectives:
• Assessing development opportunities using Ansoff's development vector matrix.
• Evolution options using a series of analytical frameworks to demonstrate an understanding
of competitive advantage in an organizational context
• Critically evaluating specific development options and paths keeping in mind the risks of
each option and how to reduce them.
• Assessing the possible sources of funds available to companies and discuss the benefits
and shortcomings of each source.
Contents:
• Justification for adopting a suitable source for financing a given regulatory reference
• Evaluation of potential sources of wealth, by using reasonable arguments to adopt a source
or group based on regulatory sources.
• Recommendations and Valid Judgements for business

4
P1 Analyse key considerations for evaluating growth opportunities and justify these
considerations within an organisational context.
M1 Discuss the options for growth using a range of analytical frameworks to demonstrate
the understanding of competitive advantage within an organisational context.
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.

5
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.
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.

7
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.
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).

11
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.

12
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 analysis requires that both measurements be calculated for each SBU. The size of the
company's strength, its relative market share, will measure the comparative advantage indicated
by the dominance of the market. The key theory underlying this assumption is the existence of an
experience curve and the fact that market share is achieved through cost control.

13
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.
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.

14
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.

15
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.

16
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.

18
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.

19
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.

20
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.

21
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.
ABC COFFEE HOUSE Analysis of the Five Forces of Porter

22
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.

23
• 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 five-
forces 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.

24
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.
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.

26
• 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.

27
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.
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.

28
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 market-
driven, 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.

30
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.

31
• 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.

32
• 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 long-
term 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.

34
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.

35
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.

36
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

37
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.

38
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.

39
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

41
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 ·

42
• 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 non-
real 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.

43
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.

44
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.

45
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.

46
• 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.

47
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.

48
• 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

49
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.

50
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 off-
season occupancy by 30% in the first year.
• Increase low season usage by investing in other uses of the property (receptions, receptions,
weddings, etc.).
1.2 Mission
Coffee House's mission is to become the best choice for accommodations in the City by improving
our visibility over the Internet (with multiple networks and links) and introducing the island to
areas that have not yet discovered paradise all the yearlong. 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. The guests of the cafe have every need to ensure their comfort. For special
occasions, catering, chilled wine, etc. can be provided for additional allocation. At weekends,
guests return to the C & B in the evening and find cheese, fruit and wine to nibble before returning
home. While the C & B opens in the main season, we plan to expand our services to the city's
residents in good 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
exterior with access to the beach, a beautiful tropical courtyard and a private terrace opens several
additional possibilities. A pavilion in the front yard would be the perfect location for a wedding,
as well as sand and surf for those who prefer a beach wedding. With the capacity of a catering
reception inside, Coffee House facilitates and simplifies the event for guests. Immediate family
members or selected members of the wedding party can stay at the C & B, while other members

52
of the wedding party are referred to the neighbouring hostels. This joint practice is not new to City,
but Coffee House will be a new member in the stock market. In addition to site information, we
plan to work with local travel agents and businesses by offering in-kind packages and special rates
to cooperating merchants, including guided Coffee tours.
Amenities that go beyond typical restaurants include:
Chocolates on arrival.
• A free music CD for each room that the customer can keep (copy included in the package).
• An extensive audio and video library for the use of clients.
• Stereo CD systems and VCRs in every room.
• A variety of herbal teas.
• Fresh muffins of the day and fresh fruit.
• Links to other companies and services on the island and on the continent.
1.3 The key to success
• To be successful, the new management team will strive to achieve the following goals:
• Position Coffee House C & B as the best City Island C & B among the many tourists.
• Building a strong market position with local customers.
• Maintain sound financial management of the company.
1.4 Summary
Coffee House Couch and Breakfast is a C & B that has been operating under the name Couch and
Breakfast 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.
2.1 Ownership
The Coffee House Couch and Breakfast is a partnership owned in equal parts by ABC Inc. Mr.
James will live on the property, manage and maintain the business, and meet the requirements of
the City Island license. Mr. Peter will stay in Indian to fulfil his employment contract. When the

53
C & B becomes self-employed, Mr. Peter will resign - transferring his retirement money to the
capital pool, moving to the city and fulfilling C & B's day-to-day responsibilities.
2.2 History
The Coffee House Couch and Breakfast was built in 2000 and would have been one of three train
stations on City Island. The resort provided guests with a place to see the and change after a day
at the beach before boarding for the return trip. The building was repeatedly restored and used
since the end of the train operation. It is currently being used as a Couch and Breakfast room, after
having begun a phase of renovation and substantial improvements to the property with two rental
units and a residential unit. The current owner has continued his improvements (new roof and new
construction of a more efficient apartment above the existing roof). Due to continuous structural
improvements in the last three years, the C & B has not gone through a full operational season.
After completion of the construction work, four rental units can now be created whose owners can
occupy an unused space. In addition to restrictions imposed by building regulations, island inn
operators and other member companies have indicated that the current owner lacks the
commitment, investment and business acumen to leverage superior capacity. The current owner
often leaves the building in the care of an answering machine and categorically denies access to
various groups of people. The consensus is that it was a hobby and not a company in its current
ownership. The following table shows the performance of C & B in the last three years under the
current regime.
3.1 Services
Coffee House Couch & Breakfast is a resort on City Island, India that offers its guests a luxurious
environment at reasonable prices while vacationing in the coastal region of India.
3.2 Summary of the Market Analysis
Coffee House C & B focuses on providing high quality, luxurious but affordable lodging for
vacationers wishing to explore City Island and the surrounding coastal regions of India. This region
is a sleeping giant just waking up. Our main potential customer groups are those who traditionally
opt for the couch and Breakfast climate and the more traditional and sterile environment of hotels

54
and motels. 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.
4.1 Market Segmentation
Our two main clientele are Northern tourists, who traditionally prefer the warm atmosphere of C
& B, and local customers who need facilities for various events. The following table shows the
entire market potential of our company. A modest forecast for rent increases is 30% per year. The
competitors on the island have recorded an average rent increase of at least 30% in the last three
years, and the hostel expects an increase of 50% in the next two years before they reach their rents
maximum capacity. This forecast does not lead to a significant increase in advertising or awareness
but is based on the average increase in tourism.
4. 2 Target Market Segment Strategy
History shows that we can make money in this area simply by existing. We also see that City Island
is generally underexposed as a “round the year” holiday destination. We plan to aggressively
pursue Northern customers as we introduce City Island into this underserved marketplace. We also
plan to use the C & B for local guests by opening it for receptions, receptions, etc. Subscriptions
to various web services provide international exposure to the annual subscription fees. The
obligation to stay in the building to make reservations and to open the C & B to different groups
of people also increases the number of bookings.
4.3 Market Needs
Like tourists who choose to stay in traditional hotels, C & B customers seek relaxation,
entertainment and stress management during their vacation. However, this type of guest also
prefers comfortable accommodation in a comfortable family environment. These clients are more
social, they want to meet new people and at the same time need enough privacy to enjoy their
holidays. Coffee House has all the necessary facilities to attract such customers.

55
4.4 Analysis of service activities
C & B and other short-term accommodation options on City Island are an important part of island
tourism. Ten of the short-term housing units in City are classified as weth hostels, 19 in long-term
leases (rentals, condominiums and homes) and only four in the C & B category, including the
Coffee house (which currently serves as a Couch and Breakfast). The hotels / motels make up the
largest percentage of rental properties on the island in terms of units. However, the average C &
B customer is generally not interested in the climate in the hotels / motels. This and the
significantly higher tariff comparison in the hotel / motel sector do not classify these facilities in
the category of competitors.
4. 5 Competition and Shopping
The Couch and Breakfast business provides a unique hosting environment for a growing group of
travellers. C & B creates a home-like climate where guests become temporary members of a larger
family. The C & B House is open to guests and allows them to share and share in the wealth of a
community while enjoying the privacy they prefer. Meals can be shared with owners and other
travellers, creating new relationships and enriching old ones. We can also take the meals in the
privacy of the room. A variety of settings available at the C & B allow individuals or small groups
to find the perfect environment for the atmosphere or activity they are looking for (reading,
watching TV, board games, etc.). ). At the C & B, a guest is a guest at home, not a guest. It will be
a place of return: at the end of the day or in the next holidays (like to go home). At Coffee House
C & B, guests enjoy a perfect blend of privacy and privacy. To be conscientious without being
obtrusive is a delicate balance that dominates the owners in their various spheres of life.
Summary of Strategy and Implementation
We strive to make the most of City Island from the beginning. As a furnished (turnkey) operation,
we can invest more time and money in the finer things (additional amenities that go far beyond
those associated with other inns on the island). Parking is a problem in most resorts. The Coffee
House has on-street parking that can accommodate all guests. These are the extras that people
remember, and which distinguish exceptional accommodation from the right one. With the right
lighting, we believe that City Island and the Coffee House can attract an untapped holiday market.

56
In addition, the company has built exclusive relationships with travel destinations and special event
websites and call centres and has provided access to more than 1,000 Pan India agents and
Travelocity users. One of the most popular online travel sites. All visibility is free, except for 5 to
10% transaction fees for all bookings made directly through the service and online. much cheaper,
but more comprehensive than traditional advertising. However, not all C & B customers are
friendly. As a result, we will be placing certain seasonal advertisements in regional newspapers
and large city magazines.
5.1 Competitive Atmosphere
Advantage We begin with one major competitive advantage: We do not know any competitors
who can offer the comfort and luxury that can be found in the Coffee House. We travelled the
country and stayed in many houses. We know how to create the climate, the others consider hosting
& shopping,
5.2 Sales strategy
Coffee House sell their rooms directly to loyal customers as well as through traditional travel
agencies and the Internet. All bookings are processed by Mr. James. Regular customers have the
privilege to book in the high season preferred.
5.3 Sales Forecasts
Our sales are based on City Island's historical market performance and the following occupancy
and occupancy assumptions:
• On season (May-Sep)
• Occupancy Rate - 85%
• Apartment - $20
• Large Jacuzzi - $17
• Adjoining Unit - $15
• Smaller Unit - $12

57
• Off-season (Oct-Apr)
• Occupancy Rate - 45%
• Apartment - $15
• Large Jacuzzi - $10
• Adjoining Unit - $8
5.4 Past Performance
SALES FORECAST
2018 2019 2020
Sales
Apartment $40,320 $42,336 $44,453
Large Jacuzzi $34,324 $36,040 $37,842
Adjoining Unit $27,140 $28,496 $29,921
Smaller Unit $22,934 $24,081 $25,285
TOTAL SALES $124,718 $130,953 $137,501
Direct Cost of Sales 2018 2019 2020
Apartment $0 $0 $0
Large Jacuzzi $0 $0 $0

58
Adjoining Unit $0 $0 $0
Smaller Unit $0 $0 $0
Subtotal Direct Cost of Sales $0 $0 $0
5. 5 Managerial Summary
The coffee house acts as a company owned by its owner. The salary for the first year of
employment is given in the table. While this salary is low, it is appropriate because the main cost
of living (mortgage, utilities, etc.) is borne by the company.
6.1 Staffing Plan
Mr. Maesh will be at the property during the day to day administrative tasks. The co-owner, Mr.
Peter, will retire in September 2020 and move to City Island. Since he will live outside the
property, his expected total compensation is higher than that of Mr. James.

59
The following table shows the staffing plan for Coffee House.
Staffing Plan 2018 2019 2020
John James $12,000 $15,000 $18,000
Frank Peter $3,000 $20,000 $22,000
Total People 2 2 2
Total Payroll $15,000 $35,000 $40,000
6.2 Financial Plan
The coffee house is purchased through a Small Business Administration (SBA), with buyers
granting a 20% discount, SBI 50% and SBA 30%. The bank loan is 20% at 20 years and the 10-
year SBA 504 loan is 10%. For the operating expenses we assume a starting capital. In addition to
the seed capital available after Mr. James's departure, Mr. Peter will make an additional investment
by 15 September 2020.
7.1 Break-Even Scrutiny
We estimate that the average monthly fixed costs have been raised to approximately $ 8,000 for
fees plus interest payments. Peak and non-productive times will have a 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. In addition, a rate increase could be considered
for the 2019 financial year.

60
BREAK-EVEN SCRUTINY
Monthly Revenue Break-even $3,486
Assumptions:
Average Percent Variable Cost 0%
Estimated Monthly Fixed Cost $3,486
7.2 Expected Result
Below are the estimated earnings of the Coffee House for three years. Sales are subject to seasonal
fluctuations. The new property, however, strengthens Coffee House's market position in the local
community, which will help the company in off-season and offset the negative effects of the
season.

61

62

63
PROFORMA PROFIT AND LOSS
2018 2019 2020
Sales $124,718 $130,953 $137,501
Direct Cost of Sales $0 $0 $0
Other $0 $0 $0
TOTAL COST OF SALES $0 $0 $0
Gross Margin $124,718 $130,953 $137,501
Gross Margin % 100.00% 100.00% 100.00%
Expenses
Payroll $15,000 $35,000 $40,000
Sales and Marketing and Other
Expenses
$2,775 $3,900 $4,095
Depreciation $4,440 $4,500 $473
Insurance $2,580 $2,600 $210
Telephone $2,400 $2,500 $10,500
Security $420 $450 $368
Duties & Subscriptions $175 $200 $2,100
Rent $9,996 $10,000 $10,000
Room/Housecleaning $300 $350 $2,730
Groceries $1,500 $2,000 $2,625
Payroll Taxes $2,250 $5,250 $6,000
Other $0 $0 $0
Total Operating Expenses $41,836 $66,750 $79,100
Profit Before Interest and Taxes $82,882 $64,203 $58,401
EBITDA $87,322 $68,703 $58,874
Interest Expense $52,500 $51,750 $50,150
Taxes Incurred $7,480 $3,113 $2,097
Net Profit $22,902 $9,340 $6,154
Net Profit/Sales 18.36% 7.13% 4.48%

64
7.3 Forecast Cash Flow
The table below shows the forecast cash flows and shows that the company has enough cash
reserves to cover the low off-season sales. These forecasts are realistic in terms of the historic City
Island market and its business, based on current pricing studies and the addition of a fourth rental
unit.
PROFORMA CASH FLOW
2018 2019 2020
Cash Received
Cash from Operations
Cash Sales $31,179 $32,738 $34,375
Cash from Receivables $88,704 $97,773 $102,662
SUBTOTAL CASH FROM OPERATIONS $119,883 $130,512 $137,037
Additional Cash Received
Sales Tax, VAT, HST/GST Received $0 $0 $0
New Current Borrowing $0 $0 $0
New Other Liabilities (interest-free) $0 $0 $0
New Long-term Liabilities $525,000 $0 $0
Sales of Other Current Assets $0 $0 $0

65
Sales of Long-term Assets $0 $0 $0
New Investment Received $0 $0 $0
SUBTOTAL CASH RECEIVED $644,883 $130,512 $137,037
Expenditures 2018 2019 2020
Expenditures from Operations
Cash Spending $15,000 $35,000 $40,000
Bill Payments $97,015 $80,725 $90,155
SUBTOTAL SPENT ON OPERATIONS $112,015 $115,725 $130,155
Additional Cash Spent
Sales Tax, VAT, HST/GST Paid Out $0 $0 $0
Principal Repayment of Current Borrowing $0 $0 $0
Other Liabilities Principal Repayment $0 $0 $0
Long-term Liabilities Principal Repayment $0 $15,000 $17,000
Purchase Other Current Assets $0 $0 $0
Purchase Long-term Assets $500,000 $0 $0
Dividends $0 $0 $0
SUBTOTAL CASH SPENT $612,015 $130,725 $147,155
Net Cash Flow $32,869 ($214) ($10,117)
Cash Balance $44,869 $44,655 $34,538
7.4 Expected Balance Sheet
The table below outlines the projected balance sheet of Coffee House for Fiscal Year
2018-2020.
PRO FORMA BALANCE SHEET
2018 2019 2020
Assets
Current Assets
Cash $44,869 $44,655 $34,538
Accounts Receivable $8,834 $9,276 $9,740
Other Current Assets $1,000 $1,000 $1,000

66
TOTAL CURRENT ASSETS $54,703 $54,931 $45,277
Long-term Assets
Long-term Assets $700,000 $700,000 $700,000
Accumulated Depreciation $34,440 $38,940 $39,413
TOTAL LONG-TERM ASSETS $665,560 $661,060 $660,588
TOTAL ASSETS $720,263 $715,991 $705,865
Liabilities and Capital 2018 2019 2020
Current Liabilities
Accounts Payable $5,361 $6,749 $7,469
Current Borrowing $0 $0 $0
Other Current Liabilities $0 $0 $0
SUBTOTAL CURRENT LIABILITIES $5,361 $6,749 $7,469
Long-term Liabilities $525,000 $510,000 $493,000
TOTAL LIABILITIES $530,361 $516,749 $500,469
Paid-in Capital $50,000 $50,000 $50,000
Retained Earnings $117,000 $139,902 $149,242
Earnings $22,902 $9,340 $6,154
TOTAL CAPITAL $189,902 $199,242 $205,396
TOTAL LIABILITIES AND CAPITAL $720,263 $715,991 $705,865
Net Worth $189,902 $199,242 $205,396
7.5 Corporate Ratios
The following table provides business data for Coffee House C&B.
Ratio Analysis
2018 2019 2020 Industry
Sales Growth 340.39% 5.00% 5.00% 5.90%
Percent of Total Assets
Accounts Receivable 1.23% 1.30% 1.38% 5.00%
Other Current Assets 0.14% 0.14% 0.14% 26.00%

67
Total Current Assets 7.59% 7.67% 6.41% 32.00%
Long-term Assets 92.41% 92.33% 93.59% 68.00%
Total Assets 100.00% 100.00% 100.00% 100.00%
Current Liabilities 0.74% 0.94% 1.06% 19.40%
Long-term Liabilities 72.89% 71.23% 69.84% 34.60%
Total Liabilities 73.63% 72.17% 70.90% 54.00%
Net Worth 26.37% 27.83% 29.10% 46.00%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 100.00% 100.00% 100.00% 0.00%
Selling, General &
Administrative Expenses
81.73% 92.87% 95.50% 75.10%
Advertising Expenses 1.60% 2.29% 2.29% 1.90%
Profit Before Interest and
Taxes
66.46% 49.03% 42.47% 2.50%
Main Ratios
Current 10.20 8.14 6.06 1.45
Quick 10.20 8.14 6.06 1.05
Total Debt to Total Assets 73.63% 72.17% 70.90% 54.00%
Pre-tax Return on Net Worth 16.00% 6.25% 4.02% 1.70%
Pre-tax Return on Assets 4.22% 1.74% 1.17% 3.70%
Additional Ratios 2018 2019 2020
Net Profit Margin 18.36% 7.13% 4.48% n.a
Return on Equity 12.06% 4.69% 3.00% n.a
Activity Ratios
Accounts Receivable
Turnover
10.59 10.59 10.59 n.a
Collection Days 59 34 34 n.a
Accounts Payable Turnover 15.37 12.17 12.17 n.a
Payment Days 34 27 29 n.a
Total Asset Turnover 0.17 0.18 0.19 n.a

68
Debt Ratios
Debt to Net Worth 2.79 2.59 2.44 n.a
Current Liability 0.01 0.01 0.01 n.a
Liquidity Ratios
Net Working Capital $49,342 $48,182 $37,808 n.a
Interest Coverage 1.58 1.24 1.16 n.a
Additional Ratios
Assets to Sales 5.78 5.47 5.13 n.a
Current Debt/Total Assets 1% 1% 1% n.a
Acid Test 8.56 6.76 4.76 n.a
Sales/Net Worth 0.66 0.66 0.67 n.a
Dividend Pay-out 0.00 0.00 0.00 n.a

69
P5 Explain exit or succession options for a small business explaining the benefits and
drawbacks of each option.
Business Exit Strategy
• The exit strategy of the business is a strategic business plan to sell the company's assets to
investors or other companies.
• Common strategies include the acquisition, merger, the stock market or dismantling
operations.
• In the event of business failure, an exit strategy could limit the loss of business.
• Selection of exit plan may affect the development of business solutions.
• The most common exit strategies include initial public offerings, strategic acquisitions and
procurement management.
• Which exit strategy the employer chooses depends on many factors, such as control or
participation (if any) to remain in business.
• Internet interfaces also affect an exit strategy, as they often lead to high prestige and high
profitability.
• A key aspect of exit strategy is the assessment of companies, and there are experts who can
help entrepreneurs (and customers) to examine the financial position of the company in
determining the fair value.
• There are also leaders of transitions that have the function of assisting traders in business
strategy.
Types of Exit Strategies for Small Business Owners
1. Close Down
Advantages:
• Fast and easy to find a vendor
Defect
• Not selling a business means that there is no revenue from the sale
• Loss of brand value and future fall in value

70
If a business has been in existence for a long time, then there is a great deal of "name" likely to be.
In other words, the name of the business (or "brand") is a value. If a company closes, this goodwill
will be lost. So, if someone offered to buy the name later, because the business was closed, the
price fell, and the sale price was low if the job was still working.
2. Drain It
Benefits:
• Can be profitable
• Small planning is required of
Defects
• Can lead to higher taxes
• Ability to break operational agreements
• If it is not done correctly on time, the action can be disastrous.
Another option would be to get more cash each year, while enough work should be done so that
they continue to work profitable. This strategy is logical where labor generates a lot of money and
requires very little occupation by the owner. Examples may include manufacturing companies,
restaurants, nightclubs, real estate brokerage firms, consulting firms and others. Although the
"drain" option cannot achieve the highest return on investment, there are advantages. Very little
planning is needed and can be very beneficial.
However, there are some potential disadvantages:
• If we take money in pay, then tax can be enough. Consult with the accountant or
financial planner.
• If we are the majority owner, but we are not the sole owner, then we can violate
operating agreements without taking out a lot of money or paying other owners.
• If we take a lot of money at the wrong time (for example, just before the recession),
then we can kill the company quickly, and we are still facing heavy tax liabilities.

71
3. Sell Business
Benefits:
• Big Revenues Can
Defects
• It may take longer than expected
• Suitable buyers are required
• Pricing depends very much on the economic cycle.
Sales is always an option: The question is how much can we get to the company? The key is to
find the right buyers who give high value to the company. In general, more potential buyers to
work, better, since then we can set market prices. Most business brokers recommend starting a sale
plan of at least 3-5 years. It may seem highly alert, but in many cases, the period of 5 years is not
enough. As the owner of a company, it is very easy to be very attached to the job and the way it
really works for a stranger, ignore it. The company which makes us valuable, cannot have any
effect on the potential buyer. If we take advantage of time and act wisely to prepare for sale, then
we will be able to significantly increase the value of the company and thus the selling price can be
very high.
3. Friendly Buy Out
Advantage:
• It may feel better to let a friend or family get the business
Defects
• Personal relations can be weakened during the sales negotiations.
It happens when the owner transfers ownership to family members, friends or employees. Still
selling, but the terms and nature of the transactions are usually very different. The fact is that our
closest buyer makes it easy and difficult to fulfil. Easy because we have a better understanding
about the buyer; we keep fewer aims about buyers and leave more chances to negotiate and plan.
Be sure to include an experienced professional so that we protect ourselves before, during and after
the sale through the transfer of business ownership agreement. Like all other options, we should

72
start planning early. There is relatively rare variation in the transfer of business for employees
through cooperative transfer owned by the employees.
IPO (Initial Public Offer)
Benefits:
• Media / public responsiveness
• Can generate substantial wealth
Defects
• Not applicable to most companies (99.9%)
• Expensive and a lot of resources are needed
Even though most newsletters get the IPO, they are actually very rare. Near the height of the
economic turmoil of 1990, 853 companies were floated in 1996. In a more specific year, the figure
is more than 200, or even less. To keep this in perspective, there are over five million employers
in the US, so in a typical year, less than 0.01% of all companies are subject to public membership
in any given year. In the acquisition of a public company, the IPO process is expensive and
intensive for both jobs, usually requires more than one million dollars in advance investment. The
Sarbanes-Oxley Act, which was released immediately after the Enron scam, costs hundreds of
thousands of dollars in advisory fees to small public companies. For example, there are very few
consulting firms that do business in public. Since the property of a consulting firm is closely related
to its employees, and if the employees leave, the property goes beyond the door. Of course, there
are very few companies whose IPO is logical and may be necessary. But for 99.99% of us, the IPO
is not just a viable exit strategy.

73
M4 Evaluate exit or succession options for a small business comparing the options and
making valid recommendations.
D4 Provide critical evaluation of the exit or succession options for a small business and decide
an appropriate course of action with justified recommendations to support implementation.
Recommendations
Shutting Down
It is indeed always an option, but this is not the best choice ever. If the company has a brand value,
then the company has a loyal or big customer base, or the company has a stable core of employees,
the employer would be better off selling the company.
Passing it to a family member
We must make decisions based on what is appropriate for the business. Management consultant
Ernst & Wang recommends that external consultants be hired to get a more objective view, as well
as a formal succession plan to ensure that expectations are clearly defined in all cases. Also, make
sure that we have withdrawn all necessary skills and training and to ensure that important decisions
are made fairly with the involvement of all the family members, consider making a "round table"
or family board. , And any potential conflict is quickly disabled.
Executive Buyout
This option always has a risk of fallout with the people whom we personally know. The personal
relations might adversely get affected. Price negotiations can be difficult with those whom we
know well, and we can finally leave money on the table. Therefore, try to work things vigorously,
and bring people from overseas to assess the value of work and establish a fair agreement. When

74
the deal is complete, oppose the continuation of the request, unless we are called not to do so. In
general, it is best to stay away and allow new owners to operate things in their own way.
Selling a Business
To make our business attractive to other businesses, we may require making about tough changes.
For example, a business that relies heavily on distinct skills and proficiency, will not trust a good
sales price, especially if we plan to quit after the deal is completed. Buyers want to see a company
that can work independently. Also make sure that internal processes have been verified by a third
party. A potential buyer will do a "hard work" on a large scale to check the business and ensure
that it is correct. Some businessmen can interrupt informal behavior transactions, or at least reduce
the price. Normal red tags include "handshake" deals with some or any official document and
hiring friends or family members.
Liquidation
Since, liquidation is unlikely to yield lower value than other exhaust options, it is important for
creditors and shareholders to present a liquidation plan and obtain their approval before they can
be run. This is then a comprehensive list of all the properties and is the best way to sell them.
Options include selling directly to a competitor or supplier, selling all goods to a dealer in bulk,
organizing auction or conducting retail sales to customers.
Valid Judgements
Besides the main options as mentioned above to get out completely from work, we have other
options as well, especially if we are looking for partial exit. We do not want to be away from work,
but we just want to take out some money from the table and want to take a bigger seat in business.
In this case, it may be helpful to pay attention to some of the options that we have seen in our
recent business finance chain.
For example, some business owners call private equity firms to invest in their business as a partial
withdrawal strategy. They sell a large part of the company's shares to PE, and they assign some

75
administrative control. It is an idea that private equity investors make the company more valuable
during the five to seven years of their participation, then arrange for an initial sale or public
offering, and then the owner can either go out completely or become as the minority shareholder.
The initial IPO can also be used as partial or complete exit strategies. After the initial public
offering, the original owners often remain in their place, but some seize the prospect to sell most
of their shares and handover the administration to someone else.
The path we take depends on what we want to achieve and what is important to us. It is a good
idea to send a business to a family member if we have a competent and capable successor, but it
can sometimes cause conflict and be carefully managed.
Management or acquisition of employees maintains some continuity in business and reward loyal
employees, but after high valuation of the company, this arrangement can be difficult.
Commercial sales often provide the best value for a company, but it means losing control. The
liquidation business is a "last resort" option to get out of the cleaning, but usually without realizing
its real value.
The key, no matter what option we choose, is the initial plan. If life's circumstances suddenly
change, then we should be under a danger. Thus, we should ensure that we have a specific strategy,
so be prepared to get out of business when the time comes.
Further, this involves providing a dedicated life after business ownership. A recent study found
that nearly 70% of entrepreneurs and self-employed do not regularly save for retirement. If we sell
businesses to millions, this problem will not happen. But if the amount of sales is low, or if we
want to transfer business to a family member for a nominal amount, then we will need to make
other provisions for ourselves.

76
BIBLIOGRAPHY/REFERENCES
Managementstudyguide.com. (2019). What is Competitive Advantage in the Field of Strategic
Management?. [online] Available at: https://www.managementstudyguide.com/competitive-
advantage.htm [Accessed 10 Jul. 2019].
MBA Skool-Study.Learn.Share. (2019). Generic Strategies Definition | Marketing Dictionary |
MBA Skool-Study.Learn.Share.. [online] Available at: https://www.mbaskool.com/business-
concepts/marketing-and-strategy-terms/14821-generic-strategies.html [Accessed 10 Jul. 2019].
Infoentrepreneurs.org. (2019). Develop new products and services. [online] Available at:
https://www.infoentrepreneurs.org/en/guides/develop-new-products-and-services/ [Accessed 10
Jul. 2019].
Cleverism. (2019). GE McKinsey Matrix: How To Apply it To Your Business. [online] Available
at: https://www.cleverism.com/ge-mckinsey-matrix-how-to-apply-it-to-your-business/ [Accessed
10 Jul. 2019].
Managementstudyguide.com. (2019). Ansoff Matrix. [online] Available at:
https://www.managementstudyguide.com/ansoff-matrix.htm [Accessed 10 Jul. 2019].
TheTechPanda.com. (2019). Different Types of Funding Sources for your Startup. [online]
Available at: https://thetechpanda.com/seven-types-of-funding-sources-for-your-startup/11238/
[Accessed 10 Jul. 2019].
eFinanceManagement.com. (2019). Sources of Finance | Owned-Borrowed, Long-Short Term,
Internal-External. [online] Available at: https://efinancemanagement.com/sources-of-finance
[Accessed 10 Jul. 2019].
Under30CEO. (2019). 6 Sources of Startup Funding and Their Pros and Cons. [online] Available
at: https://under30ceo.com/6-sources-of-startup-funding-and-their-pros-and-cons/ [Accessed 10
Jul. 2019].
Plan, A. (2019). A Detailed Outline That Will Make You Understand a Business Plan - BBCDAILY.
[online] BBCDAILY. Available at: https://bbcdaily.co.uk/a-detailed-outline-of-a-business-plan/
[Accessed 10 Jul. 2019].
Bplans Blog. (2019). A Standard Business Plan Outline [Updated for 2019] -. [online] Available
at: https://articles.bplans.com/a-standard-business-plan-outline/ [Accessed 10 Jul. 2019].
Investopedia. (2019). Business Exit Strategy Definition. [online] Available at:
https://www.investopedia.com/terms/b/business-exit-strategy.asp [Accessed 10 Jul. 2019].
MBA Skool-Study.Learn.Share. (2019). Generic Strategies Definition | Marketing Dictionary |
MBA Skool-Study.Learn.Share.. [online] Available at: https://www.mbaskool.com/business-
concepts/marketing-and-strategy-terms/14821-generic-strategies.html [Accessed 10 Jul. 2019].