Finance Report: Analyzing Funding for Restaurant Business Expansion

This report, prepared by a trainee financial advisor, examines the financial strategies for the potential expansion of a sole trader restaurant. It begins by evaluating key technical terms in business finance, such as finance, working capital, capital expenditure, capital revenue, term-based finances, and revenue expenditures. The report then analyzes different sources of finance for various legal structures of business including sole proprietorship, corporation, partnership, and limited company, highlighting the advantages and disadvantages of each. It identifies internal sources like owner's capital, retained earnings, and sales revenue, as well as external sources such as equity, loans, and trade credit. The report concludes by assessing the most suitable finance sources for business expansion, considering personal savings, trade credit, and internal funding options. The report also touches upon operational considerations like staffing, location, cost management, and the potential need for partnerships or management to support expansion efforts.

FINANCE

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
1.1 Evaluating technical terms of business finance................................................................1
1.2 Analysing the different sources of finance for legal structure of business.......................2
2.1 Identifying internal sources for finance............................................................................4
2.2 Available external sources for finance.............................................................................5
2.3 Assessing the most suitable finance source for business expansion................................5
CONCLUSION................................................................................................................................7
REFERENCES................................................................................................................................8
BIBLIOGRAPHY............................................................................................................................9

INTRODUCTION
As a trainee financial adviser I will be reviewing finance methods for the possible
expansion of a sole restaurant business. Financial stability of a firm will be beneficial in context
with making investment or expansion of the business operations. Hence, in the present report
there will be discussion based on the various financial terms and their usefulness for the
expansion of the sole trader restaurant in UK market. Hence, the report will highlight the various
internal or external sources at which they can be able to make the adequate changes.
1.1 Evaluating technical terms of business finance
In order to make the successful run of a firm there is need to adopt various financial
terms which in turn helpful for the business to have proper management of finance as well as
relevant issues. However, such terms can be understand as:
Finance: The requirements in operating the business transaction it will be performed
with the adequate amount of funds in the organisation. Hence, the monetary and non benefits
will help the business in making adequate operational activities. The purchase of material,
appointment of adequate numbers of staff members well as the production process. Apart from
the internal decorum of entity the requirements of finance and funds will be necessary in the
marketing or promoting the products, supply and distribution of goods and services. Thus, it
context with the requirements of the firm there is need to have appropriate amount of funds.
Working Capital: The current position of business can be denoted as the current
liabilities or assets of the firm. Hence, in consideration with such accounts the company will
become able to make the adequate investments in context of purchasing inventories, making
investment, paying off debts, borrowings and the interests over such borrowings. Hence, with the
help of analysing such financial tools or terms the owner will be efficient enough to manage such
current requirements.
Capital expenditure: In accordance with the capital expenditures of the business the
firm makes' investment in purchasing the adequate amount of fixed assets which in turn have the
adequate resale value. Hence, such expenditures will be known as buying land, building.
Machines and various operational equipments.
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Capital revenue: The income gained by the organisation by making sales of various
assets of the business such as land and building, inventory, as well as equipments which in turn
helpful for the firm in acquiring good amount of funds.
Term based finances: There will be investment which are based on the short term,
medium term as well as long term financing. Hence, such investments will be distinguished as
per the time duration of them such as short term investments will be 0-1 year, mediums term will
be 1-5 years ad the long term financing will be more than 5 years.
Revenue expenditures: By considering this term of expenditure which are made for
improving any assets or liabilities. Hence such expense do not help the firm directly in meeting
any further expenses but are essential to be made. These expenses are maintenance charges,
repairs of any machine and tools.
1.2 Analysing the different sources of finance for legal structure of business
In context with obtaining the adequate finance for the fruitful business operations there is
need to analyse the sources or funds as well as its requirements in performing business
operations. However, there will be discussion based on the Four legal structure of venture and
the medium on which they could generate the funds such as:
Sole Proprietorship: This kind of legal structure has been operated by a single owner or
the family which denotes that all the profit and losses has been obtained by the single person.
Thus, it can be beneficial in the terms of profit gathering and acquiring adequate amount of
revenue but it can be risky as if the person will not able to have adequate returns from any
investment as well as have deficits in his accounts which has to be managed by a single person.
Hence, the individual can be able to gather funds from his own savings, selling of products and
services, Angle investors and the business grants.
Advantages:
 An owner will have the complete control over the all the operational activities in the firm.
There will be governance of the only one person and his execution.
 Individual need to make any corporate tax payments as well as there will be minimal
legal expenses.
 The profit or revenue has to be acquired by the single owner.
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Disadvantages:
 All the losses or risks has to bare by single person and which will create the burden over
him as well as all the responsibilities to make the expansion of any kinds of operational
decision which will lies of the single shoulder.
Corporation: These organisations seeks funds from the internal as well as external
sources. Hence, it can be denoted as the separate legal entity which means that the corporation is
itself ids a legal person who can operate in the market and have the earnings as well as acquire
the property which will be its own assets (Rostamkalaei and Freel, 2016). Hence, such industries
can be able to gather the funds form shareholders, investors and from the bank grants, loan etc.
Advantages:
 There will be limited liability as there will be investments gathered by the help of various
shareholders.
 There will be benefits in gathering the capital and transfer of the ownership.
Disadvantages:
 Owners have to make payments of the corporate taxes and the income taxes over their
personal revenue hence it can be said that there will be payments of double taxation.
 There will not be independent management the business will be governed by two or more
persons.
Partnership: There will be influence of more than one person in the business operations
and they will be adequate proportion of their investment, profit gathering or losses. Hence, it can
be said that these kinds of firms are very beneficial in executing cause all the losses and gains
were equally or proportionately divided between the partners (Knack and Xu, 2017). However,
the capital invested by partner will be beneficial for the organisation in terms with gathering the
adequate funds which are to be used in profitable investments or business expansion.
Advantages:
 There will be adequate amount of fund gathering. Thus, the investments will be made y 2
or more than 2 partners but less than 20.
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 The duties and execution will be managed between partners as well as all the risks and
losses will be divided between partners.
Disadvantages:
 There debt of the business will be exceeding and organisation become liable to make
payment of such liabilities.
Limited company: The business is benefited in making any personal liabilities as well as
have the benefits of operating in the market without paying any tax. Hence, these kinds of
organisations can be operated by the single owner or in partnership but it differs from
corporation or ventures. Thus, they can gather the funds from sources like shareholder's
investments, grants from government or banks, owner's savings or investments etc. will initial
sources in generating funds for the business.
Advantages:
 There will be limited liabilities as the firm will limited numbers of shareholders which in
turn beneficial in making less dividend payments.
 The firm be operating as the separate entity as well as have advantages in tax payments.
Disadvantages:
 There will less amount of capital gathering and have less control over the operational
activities by the owners of the firm.
2.1 Identifying internal sources for finance
By considering the business operations on the initial stage the firm can be gather funds
from the internal sources as well as make an adequate utilisation of such resources such as:
 Capital investment by the owner or partner's in the firm which can be their savings or the
profit revenue earned by them.
 Funds for the retained earnings and the shareholder's investment which are to be paid in
terms of dividend on the basis of annual turnover (Oseifuah and Manda, 2017).
 Revenue from making the adequate sale of the inventory or the products and services of
the business.
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 Funds can be generated through making sales of Fixed, intangible assets such as
goodwill, or any property of the entity.
 It can be generated with the help of utilising the working capital such as current assets or
current liability. Hence, it can be said that account receivables will be helpful for the
business in context with gathering the adequate amount of revenue which is the part of
operational activities of the firm.
 In accordance with the sole trader there would be various internals sources which helps in
gathering the adequate amount of funds such as Working capital, Retained earning, sale
of assets as well as savings made by owner.
2.2 Available external sources for finance
In order to enhance business operations of making expansion of functional areas the firm
can gather finance or funds from various external sources such as:
 Owners or mangers of the organisation can gather funds from the sources from various
long term sources of finance like equity share capital, bonus share issued to large fund
investors, debentures, Preferred stock, capital of entity and Lease or hire purchase etc.
 There will be benefits of gathering funds on the basis of term loans which are being
facilitated by any financial institution, banks or the other corporate industries. Hence,
they will make investment in entity which in tern consideration of having the adequate
amount of returns (Cowling and et.al., 2016).
 They can be able to gather the adequate amount of funds from the short term sources of
finance such as Bank overdrafts, Trade credits as well as debits.
 There will be gathering of the funds through external sources for example Equity capital,
debentures, preference shares, trade credit, bank over drafting etc.
2.3 Assessing the most suitable finance source for business expansion
There can be various sources of finance which are available for the business in terms of
having the adequate investment such as:
Personal sources: An owner can be able to fulfil the initial requirements of the funds by
his personally gathered savings or property. Hence, it will be beneficial for making the expansion
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of business on which the whole amount is expended by owners. Thus, they will not be liable to
make any payments of interests over such funds (Inderst, 2017).
Trade credit: It will be suitable source in context with gathering amount of income from
the quality sold out by the owner (Analysis Of Sources Of Finance For The Investment, 2017).
Hence, it can be said that as the business will going to have the funds from such sources like
account receivable. Angle investors public offerings etc.
Internal sources: It can be beneficial in terms of gathering revenue from the internal
sources such as capital invested by owner's, sale of goods and direct investments (Rostamkalaei
and Freel, 2016).
However, there has been various other necessary sources on with the owner could be able
to gather the adequate amount of funds while considering several operational areas in the
organisation such as:
 Assigning duties or performance to the labour or employees in accordance with their
talent and skills as well as managing their remuneration criteria.
 In consideration with launching a restaurant chain in another place the owner must
consider the location and surroundings which must be pleasant, healthy and appropriate
in accordance consumers satisfaction.
 Mangers need to maintain costs requirements.
 In order to make expansion like opening a restaurant chain in another place there will be
need of appointing a manager or need to have partnership in the business which will be
beneficial in operating both the sites.
 If the owner requires loans to make investment in the further business operations he must
be aware with the interest rates and the duration of the loan repayments.
Recommendation:
In order to have operational controls over both the units there is need to make partnership
agreements such as the profit and losses must be bared my partners in equal or the proportionate
which are being decided as per their amount of capital investment. They should first analyse the
current market requirements ad the trend or preferences of consumers. Thus, after analysing the
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market requirements they need to choose the place or location which is near to the residential are
as well as have the adequate environment. For example: if te trader is plan to open an ice cream
shop which will be beneficial for him to launch such business nearby beach or residential areas.
CONCLUSION
In consideration with gathering the sufficient or appropriate amount of funds there is
necessary to have knowledge regarding the effective source on which the owner or firm not need
to pay extreme amount of interests. Hence, there has been discussion made on the expansion of
sole trader restaurant chain in UK and the client has been Recommended to chose the most
appropriate source of gathering the funds.
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REFERENCES
Books and Journals
Bellavitis, C. and et.al., 2017. Entrepreneurial finance: new frontiers of research and practice:
Editorial for the special issue Embracing entrepreneurial funding innovations.
Cowling, M. and et.al., 2016. Access to bank finance for UK SMEs in the wake of the recent
financial crisis. International Journal of Entrepreneurial Behavior & Research. 22(6).
pp.903-932.
Inderst, G., 2017. UK Infrastructure Investment and Finance from a European and Global
Perspective.
Knack, S. and Xu, L. C., 2017. Unbundling institutions for external finance: Worldwide firm-
level evidence. Journal of Corporate Finance. 44. pp.215-232.
Oseifuah, E. and Manda, D. C., 2017. Awareness Of State-Facilitated Sources Of Finance
Among Owner/Managers Of Small And Medium-Sized Enterprises In South Africa. The
Journal of Accounting and Management. 7(2).
Rostamkalaei, A. and Freel, M., 2016. The cost of growth: small firms and the pricing of bank
loans. Small Business Economics. 46(2). pp.255-272.
Stevenson, T. and et.al., 2016. SME lending decisions–the case of UK and German banks: An
international comparison. Studies in Economics and Finance. 33(4). pp.501-508.
Online
Analysis Of Sources Of Finance For The Investment. 2017. [Online]. [Available
through] :<https://www.ukessays.com/dissertation/literature-review/analysis-of-sources-of-
finance-for-the-investment.php>.
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BIBLIOGRAPHY
https://bondstreet.com/blog/how-the-legal-structure-of-your-business-influences-financing-
decisions/
https://quickbooks.intuit.com/r/financial-management/15-financial-terms-every-business-needs-
to-know/
https://www.business.gov.au/info/run/finance-and-accounting/finance/key-financial-terms
https://efinancemanagement.com/sources-of-finance/internal-source-of-finance
https://efinancemanagement.com/sources-of-finance/external-source-of-finance-capital
https://www.entrepreneur.com/article/81384
https://www.ukessays.com/dissertation/literature-review/analysis-of-sources-of-finance-for-the-
investment.php
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