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A friend of yours is eager to start his business (a Florist). Your friend has saved £10,000 but knows
that a minimum of £30,000 is needed to start the business.
Instructions
You are to give advice to your friend regarding possible financial sources to raise the remaining
£20,000.00 and explain what consequences will each option bring in terms of control and in terms of
financial cost as well as the effect on the balance sheet, ultimately recommending one or 2 methods.
You should also explain to your friend that in order to obtain the necessary funds, the stakeholder
bank, investors, etc.) will need some information before releasing the funds and explain to your friend
what each stakeholder will need. Discuss also the importance of financial planning to ensure that the
funds are properly utilise in the business.Please, i do not know if i am correct or not. the question above will it be better if i advise the friend for debt financing loan capital ( bank loan) since it is a new business start up and the fund provider will need certain information such business case, collateral and business formation documentations .
Please, give me a specific guild to the question .
Kind regards
University and ACCA student
Although you would be right to recommend financing it by taking a loan (from a bank or from friends or relatives) and that they would require the information you list (especially collateral, for example if he owns a house then that would be good collateral).
However you should state the possibility of raising share capital – the problem would be finding people prepared to buy shares, and the loss of control that would result, but it would mean that the business would not have to pay interest.
The question also wants you discuss the importance of financial planning (regardless of how he ends up raising the finance).
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