Finance Report: Sweet Menu Restaurant Expansion Plans and Sources

This report examines the financial strategies for Sweet Menu Restaurant Ltd, a restaurant in East London, focusing on its expansion plans. It explores various financing sources such as bank loans, credit cards, share issues, government grants, venture capital, and hire purchase, evaluating their implications and suitability. The report assesses the costs associated with different funding options and emphasizes the importance of financial planning for decision-makers. It also analyzes budgeting, pricing decisions, and the viability of projects using investment appraisal techniques. Furthermore, the report covers the main financial systems, compares financial statement formats, and interprets financial statements using ratio analysis to evaluate the business's financial performance and make informed decisions related to expansion and resource allocation. The report provides a comprehensive analysis to help the restaurant make informed financial decisions.

MFRD

Table of Contents
INTRODUCTION ..........................................................................................................................1
TASK 1............................................................................................................................................1
1.1 Different sources of finance that are available for the business............................................1
1.2 The implication of the sources of finance.............................................................................2
1.3 Evaluation of the appropriate sources of finance for the expansion plans............................5
TASK 2 ...........................................................................................................................................5
2.1 Analyzing the costs of the different sources of finance .......................................................5
2.2 Importance of the financial planning with the reference to the new business project..........6
2.3 Assessment of the information that is needed by different decision makers........................7
2.4 Impact of finance on the financial statements.......................................................................7
TASK 3............................................................................................................................................8
3.1 Analyze the budget and make appropriate decisions............................................................8
3.2 Calculation of unit cost in order the make the proper pricing decisions...............................8
3.3 Assessment of the viability of the two projects using the investment appraisal techniques.9
TASK 4............................................................................................................................................9
4.1 Main financial system...........................................................................................................9
4.2 Comparison of the appropriate formats of financial statement for different types of
business.....................................................................................................................................10
4.3 Interpretation of the financial statement using the ratio both internal and external...........10
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................12

INTRODUCTION
Now days, each and every business unit requires a proper financing facility in order to
establish its business and generate profit out of it. The main aspect which is considered is related
to manage the financial resources in an effective manner in order to make appropriate decisions.
This present report discusses about the Sweet Menu Restaurant Ltd which is a reputable
restaurant based in East London. This report helps to understand the different sources of finance
that will be implied to establish the new branch. Proper assessment and evaluation are being
done to analyse the cost which is identified by Sweet Menu Restaurant. This report explains
about the importance of financial planning which is needed to different decision makers for
managing financial resources. The budget is being analyzed to make proper decisions related to
pricing with the help of different techniques and methods. This report will help to evaluate
financial performance of business.
TASK 1
1.1 Different sources of finance that are available for the business
Finance is an essential element which helps to carry out different operations of business.
There are various sources that are available for business in order to finance the various activities
like working capital management, allocation of resources, expansion of business in the other
countries etc. Therefore it is cleared that business requires proper source of finance in order to
complete various activities. Sweet Menu Restaurant requires proper financing in order to expand
their branches in other countries. In order to fulfil financial needs, various sources are identified
which make the finance available for the purpose of business expansion (Mayer, Schoors and
Yafeh, 2005). Various sources are discussed below:
Bank Loan: It is the type of borrowing which is done in order to make the availability of
finance for the purpose of expanding business for the specified period of time over the agreed
repayment aspects. The interest which is being imposed over the loan is tax-deductible and it
does not change over the entire payment of the loan. But, it is entitled with the security aspects as
assets of business are rendered to the bank against the loan.
Credit Card: It is the card through which payment is being done to the personal that require the
funds in order to make payment for the purpose of expansion. With the use of credit card,

finance can make available in an easy manner. On the other hand, hidden cost is associated with
it, if payment is not returned over the specified time period.
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Overdraft: This makes the availability of finance by providing facility to the business to
withdraw cash more than the amount that is available in the bank balance. The availability is
finance is done in a proper easy manner where as if the delay is done in making the repayment
then the business entity is entitled with the higher interest rate.
Issue of Share: This is the source of finance which is available in order to obtain the to
expand the business by making the offering of the certain part of the ownership that is making
the finance available for the business (Eccles and Holt, 2005). This make the availability of the
finance at a high range beside this a certain part of the ownership is to be rendered to the
shareholders against the finance that is provided by them in order to expand the business.
Government Grant: These are the offerings which are made by government to the business
entities that are required to expand business. It is the financial assistance which is provided by
government with the less marginal interest rate. Beside this, it considers the repayment in the
short span of time which increases hardship for business.
Venture Capitalist: It refers to the financing which is provided to business in order to
expand with the perceived long-term growth potential. It provides valuable information, proper
allocation of resources and proper assistance in order make business successful. It is the
uncertain form of financing (Drucker, 2001).
Hire Purchase: Purchase of resources is made by the financier over the fixed monthly
repayment with the specified time period. It provides the easy convenience for the purpose of
obtaining finance in order to expand business. In this, ownership is transferred after the payment
of the last instalment.
1.2 The implication of the sources of finance
There are various resources which help business to get finance in an effective manner. They
provide short and long term financing for business to carry out different business operations.
Implication of the different sources of finance is discussed below:
Sources of
finance
Legal
implication
Finance
implication
Insolvency
implication
Share dilution
Bank loan Legal
implication for the
bank loans is
business need to
If, bank loan is
obtained to get
finance for business
then Sweet Menu
The business entity
will be obligated to
transfer the assets
in case the
The interest rate
will be charged
higher over the
amount which is
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provide a security
towards the
amount of
borrowed funds.
Further, in case of
any default in
interest payments,
bank has legal
right to charge
penalty and sell
the security in the
market.
Restaurant will
need to pay a
certain amount of
interest over the
sum of money as
well. Even, they
will be fined for the
late payments.
business does not
function in an
appropriate
manner (Lennard,
2007).
being obtained to
carry out business.
Credit card They need to
make proper
documentation in
order to get
funding for
business.
If, payment is not
done at the
specified time then
they are will be
obligated with the
high interest rates
which is imposed
on them against
the finance that is
obtained after the
use of the card.
If, business is not
able to set up
properly then they
will be entitled
with the higher
rates of obligation
that will be
imposed on them.
High interest is
imposed over the
amount if
business entity
does not make
payment in the
specific time
interval.
Issue of share Sweet Menu
Restaurant is
legally bound to
pay dividends to
the shareholders.
Moreover,
diversification of
control is existed
Company will be
able to obtain the
huge amount in
order to carry out
business.
There can be
short fall which
can be seen while
issuing share.
Share ownership
is diluted among
the various
shareholders.
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as it provides
voting rights to
the shareholders.
Therefore, before
taking any
decision,
business needs to
communicate
with the
shareholders.
Hire purchase In
case of hire
purchase, business
is legally obliged
to pay rental
charges to the
vendor with a
fixed time period.
In case of any
default, vendor
have right to get
back the assets
from the business.
The reason for
this is ownership
of the assets is not
transferred in it.
The cost which is
involved in the
expansion of the
restaurant has to
pay with the timely
instalment plus
interest payments
over the specific
time interval
Ownership
remains in the
hand of buyer and
can be transferred
to other if they are
not able to make
the payment on
time. In case of
any default in it,
vendor can seize
the assets and can
sale in order to
recover the
payment which is
provided by them
sold.
The ownership is
transferred after
the final payment
that is being made.
Government grant
Grants must be
used for the
purpose for which
It is the assistance
which is provided
by government to
expand business.
If, t business is not
able to make
payment then they
are entitled to sale
Ownership is
diluted among the
various
stakeholders and
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it is given to the
business. It cannot
be used in any
other operating
function.
their assets which
they have rendered
to obtain finance.
the entities which
are involved.
Venture capitalist
Company needs to
pay good return to
the capitalists.
Company will be
able to obtain the
fix amount in order
to carry out
business.
It is the uncertain
form of financing
in which finance
cannot be collected
in an ample
amount.
Ownership is in the
hand of the
financier.
Overdraft
Business is legally
obliged to pay
charged interest
rates by the banks.
This makes easy for
business access
finance.
They can cease the
bank account and
the assets which
they rendered in
order to attain
finance.
Assets may be sold
at the lower prices
which will affect
the financial
position of the
firm.
1.3 Evaluation of the appropriate sources of finance for the expansion plans
Business firm requires appropriate sources of finance in order to expand business.
Various sources are evaluated in a proper manner in order to adopt proper sources of finance for
expanding business (Melis, 2007). Sweet Menu Restaurant can adopt different sources that will
help them to expand business. Following appropriate sources of finance are discussed below:
Bank Loan: This is an appropriate source of finance as it is focused on rendering finance
in an easy way in order to expand business. It is the appropriate sources because the finance is
easily available against the rendering of the assets to the banks the business require the proper
sources in order to carry out its functioning to expand . The reason for identifying bank loan as
an appropriate source because it does not include diversification of control to the lenders.
Further, loan will be available for different time duration as per the business requirement.
Another, the interest payments is allowable expenses for determining tax liabilities of the
business. Therefore, it helps to reduce the tax liability of the business hence, profits can be
maximized.
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Overdraft: It is an appropriate source because the finance is provided more than the
actual availability in the bank account in order to provide funding to expand the business across
the boundaries of other nation (Gitman, 2013). The reason for identifying overdraft as an
appropriate source is that it helps to mitigate urgent financial requirement. Therefore, in case of
arising immediate short term financial need, overdraft facilities will be considered as a best
source.
Issue of Share: This is an appropriate source of finance as huge amount of finance is being
raised by Sweet Menu Restaurant rendering shares to different stakeholders who are focused on
making investment in business. Share capital will be an appropriate source as business does not
need to pay regular the return to the shareholders. Moreover, the rate of dividend is not fixed on
the equity shareholders. Thus, it can be said that It do not impose fixed financial burden to the
organization.
TASK 2
2.1 Analysing the costs of the different sources of finance
The cost of different finance sources tends to vary from each other explained below:
Bank Loan: It is highly used by every business organization to accomplish their fund’s
requirement. The cost of loan capital is that restaurant has to make interest payments. The rate of
interest may be fixed or fluctuating (Muradoglu and Harvey, 2012). Under the fluctuating
interest rate, it may go either up or down depending upon the market condition. However, under
the fixed interest rate, payment of interest will remain constant up to the maturity period. Further,
in case of any default in making timely payments, banks have right to seize the business assets
that are kept as security against the loan.
Credit card: The cost of getting credit card is that restaurant business needs to pay
interest on it. Further, in case of any financial trouble, the cost of cards can spoil the business
entity's credit.
Share capital: Along with the debt capital, Sweet Menu restaurant Ltd. can issue both the
shares such as equity and preference so as to collect required funds. The cost of such share
capital is that restaurant has to pay dividend to their shareholders (Bentz, 2007). Another, its cost
includes printing charges for issuing share certificate and prospectus, advertisement expenditures
as well as cost for providing financial reports to them. In addition, before issuing share capital,
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business requires to comply with the legal stock exchange requirements and organize meetings
for the shareholders. On contrary, equity shareholders have controlling rights against the
company's operations hence; they can take part in the management of restaurant.
Government grant: Government encourages new small or medium sized organization to
build economic development. The cost involves that grants must be used for which it is given to
the business hence, cannot be used for the another purpose.
Venture Capital: Sweet Menu restaurant Ltd. has a good track record, therefore they can
provide venture capital to the investors (Hursti and Maula, 2007). The cost of such finance
source is that business organization has to provide return on such capital. Further, capitalist want
to take part in the business management by taking board seats and any other kind of executive
position.
Hire purchase: The cost involves that restaurant has to pay timely instalment plus interest
payments. In case of any default in it, vendor can seize the assets sold. Further, business cannot
have legal right over the assets before making full payments.
Overdraft: Banks provide overdraft facilities to the businesses that cost are that
companies have to pay higher interest charges as compare to the loan’s interest (Brigham, 2013).
Further, the overdraft amount is repayable on the bank demand.
2.2 Importance of the financial planning with the reference to the new business project
Financial planning plays an important role in the success of every business organization
(Paramasivan, 2009). Before starting new branches in Central London and Croydon, Sweet
Menu restaurant requires to make efficient financial planning. Significance of such planning is
discussed here as under:
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Determine the capital requirement: Initially, restaurant finance manager determines the
appropriate amount of capital that is required for the establishment and operational purpose. As
per the given scenario, for starting business operations at Central London, manager estimated
that the capital will be required amounted to 300000£ while, Crydon capital will be required to
500000£.
Collection of funds at minimum cost: Financial planning helps to acquire the required
amount of funds at minimum cost. It can be done through analysing different available finance
sources, identifying their advantageous and drawbacks as well as select the best source between
them. It sets an appropriate composition between owner's equity and debt capital.
Optimum use of resources: Effective financial planning frames policies in order to ensure
optimum and maximum use of all the available finance sources in the organization. This in turn,
helps restaurant business to increase their profitability.
Effective administration: It evaluates the business cash inflows and outflows so as to
proper utilization of all the funds (Elearn, 2013). Thus, it can be said that it helps to maintain
effective administration of funds. It helps to increase cash inflows and reduce the cash outflows
through monitoring business expenses and payments.
Increase profits and shareholders wealth: Effective balance between the inflows and
outflows as well as optimum use of resources helps to increase business profits to a great extent.
This in turn, helps to increase shareholder’s wealth and achieve organizational goals.
Investment decisions: Financial planning helps to take effective business decisions
through applying different investment appraisal techniques (Dontoh, Ronen and Sarath, 2008).
Therefore, restaurant business can get higher return on their investment.
2.3 Assessment of the information that is needed by different decision makers
In order to make finance available for Sweet Menu Restaurant, there is different
information which is available in order to make various decisions by different decision makers
which are as follows:
 Shareholder: They are the persons who provide investment in order to carry out business
activities. They help business to grow and expand (Ryan, 2005). They have the objectives
to get increased return on the holdings. Therefore, they need information about the
business profits and the financial position. They analyse the business cash earning
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