Doug Perkins and SpecSavers - Sourcing Funds for Entrepreneurs as an Important Undertaking - Case Study Example

Entrepreneurship Customer’s Name Customer’s Course Tutors Name 19, April 2011 Doug Perkins; SpecSavers Introduction Doug Perkins was born in Llanelli though he has most of his lifetime been in Ammanford, Australia. In his early age, he worked in a boxing early that was amongst the smallest in his home town. This was before he labored as an optometrist in the neighborhood. He ventured in other tasks such as being a doorman for a cabaret club and being a player in the local rugby club. Mary Perkins, his wife was born in Bristol. They both met at Cardiff University as they studied to become opticians. Both of them are in the top management of the company with Doug being the chairman, and Mary taking care of among other things customer relations. The first opticians practice for the couple was opened in Bristol. From this first venture, the couple opened up a small chain and later came to sell the business for two million pounds and moved to Guernsey. A little while later, they got back to the same old business but this time with specsavers. The first bases for the specsavers company were based in Guernsey and Bristol. They later ventured into Plymouth, Swansea and Bath. The company is up until today privately managed as a family business. Specsavers is an opticians’ business which is involved with the sale of spectacles, contact lenses and hearing aids. The group which was launched in 1984 by the Perkins has over 1390 stores in various countries and employs over 26,000 people. The company initially started in venturing with optical services before it got to the hearing center some time later. This company now enjoys the lion’s share of all the transactions in the market for its product in Ireland and in the UK being the biggest of its kind. The company is managed as a joint venture where the couple owns a fifty percent stake in all the outlets and the remaining part of the company is owned by the other local opticians. The company has over time grown to be the biggest of its kind in the UK controlling 70 percent of the local market for sale of spectacles and 30% of the market in dealing with contact lenses. The company is now making a huge sale from spectacles totaling to over 1Billion annually. The company also boasts of outlets in quite some countries including Finland, Australia, Netherlands, Denmark, Sweden, Norway and Ireland (Perkins, 1998). Entrepreneurship is the act of conceiving a business idea that is viable and bound to make a profit. In this act, the person involved can be said to be enterprising. To be an entrepreneur, one has to source funds from various places so as to be able to meet all the demands of the business. This paper will focus on sources of finance for entrepreneurs. It will assess the various ways through which Doug Perkins as an entrepreneur acquires funds to effectively run his business at specs savers. Sources of finance for entrepreneurs In any given business or company, the major activities include marketing and production. The effective undertaking of these activities requires financing. Everything in a business revolves around having money and being able to use to effectively and efficiently undertake all the necessary activities. The concept of finance is therefore one that the entrepreneurial world cannot neglect. There are two main theories that relate to finance sources. The first theory relates to where the funds are coming from, is it through external or internal sources while the second relates to which of the identified source is the most effective and efficient and that an entrepreneur should therefore choose (Brenner & Custer, 1990). There are two main ways through which entrepreneurs have been found to acquire funds to finance their businesses. These include internal and external methods of financing. Internal finance sources are seen as being available to small companies but are not applicable in large firms who alternatively have to seek funds from external sources (Buera, 2003). Internal financing This method of financing entails the acquisition of funds for the business from the entrepreneur or businessman himself or from the already running business. This could be from ones personal savings, inherited funds or from profits made from the business. Savings is defined as the process of setting out a given amount of money from ones income and keeping it for meeting future needs (Lazear, 2004). This could be done through the use of a savings bank account or by opening an account of capital contribution within a non banking firm such as an insurance firm with an aim of accumulating the money up to a certain amount at a specified period of time before investing it. Sourcing finance from profits made within an operational business is also referred to as re- investment where by the profits collected from the business is used to invest in the same business. Sourcing finance from inherited funds on the other hand refers to the situation whereby, an entrepreneur freely acquires funds from a loved one who may have passed away. This method of finance is not very common as not many entrepreneurs get to inherit from their loved ones (Bangs, 1998). External financing This form of financing entails accessing money from an outside source through borrowing. The borrowed funds could be from different sources. One such source includes borrowing from relatives and friends which is regarded as being an informal method of obtaining finds. Being informal this method is not seen as being effective (Kirzner, 2003). Another disadvantage of this method of accessing business funds is the possibility of lenders withdrawing from the lending process with the fear that the borrower will not pay back the money. Borrowing from commercial banks is another way through which entrepreneurs can acquire funds for their businesses. The granted loan is usually on short term basis whereby, the borrower is charged a small percentage as interest (cost paid on the total amount of capital borrowed). It is important that the entrepreneur gets to clearly understand all the conditions and terms under which the loan is being granted. The entrepreneur should ensure that he or she understands the interest rates charged by the bank before making an application for the loan. To make sure that there are no debt problems encountered, entrepreneurs must always create a business plan that is achievable and that indicates how the funds will be utilized. The creation of a budget is an effective way of ensuring that they are able to repay all the borrowed funds within the agreed time. Over drafts can also be used as another means of acquiring funds. Over drafts are defined as the type of bank lending where customers are allowed to withdraw an amount higher than what is already in their account and to pay later but with a charged interest. Another identified source of finance for entrepreneurs involves the issuance of trade credits to customers. This entails selling goods to customers, regarded as worthy, on credit. The entrepreneur running a business in this case and who requires short term financing can order for goods from his supplier but on credit. If the supplier agrees to the credit terms, then the entrepreneur gets to receive the goods and make the payments later. A discount may in this case be offered to the client who is the buyer. Another form of external financing is borrowing from non banking firms such as leasing companies, mortgage houses or insurance companies. In the case of a mortgage loan, it uses housing structures as collaterals for seeking long- term funds. This kind of long term financing method eases the payment burden for the entrepreneur as he is able to repay the money in small installments over a long period of time. This finance source has however opposed by many authors for the main reason that the entrepreneur risks loosing the house if he fails to clear up the loan as agreed. Other long term sources through which entrepreneurs acquire funds for their businesses include preference capital, equity capitals and loan and debenture socks. These are however utilized by entrepreneurs running large businesses. According to the theory that guides the selection of the best source of funds for entrepreneurs, the method selected to acquire funds is dependent on various factors that include: Cost: it is important that entrepreneurs consider the cost of each of the various loan options that may be available to them. One option may for example be charging a higher interest than the other (Otani, 1996). Financial outlook: this refers to the firm’s financial strength. If a business’s gearing ratio is high for example, then internal sources would be most effective as other lending institution may not be wiling to fund a company with a weak financial status. Legal status: in the case of a sole entrepreneur, he or she is not able to give shares and may be charge higher interest rates as they are considered to be at higher risks. Period of time: it is important that entrepreneurs carefully make prior plans to identify the duration they will require the finances for. Shorter durations make it possible for the business to reduce borrowing costs. Long term finances will be best attained from sources such as debentures while sources such as overdrafts are best suited for short term. Conclusion From the above discussion, sourcing funds for entrepreneurs is an important undertaking which allow for effective and efficient marketing and production to be done (De Meza and Southey). Before an entrepreneur selects the source of funds for his business it is important to consider what source the funds will be from, whether internal or external, as well as what the best source would be (Perkins, 1998). There are two main sources of funds; external and internal sources. While internal source financing entails the acquisition of funds for the business from the entrepreneur or businessman himself or from the already running business external source financing entails accessing money from an outside source through borrowing (William, 1997). Selecting the best source of funds for entrepreneurs is dependent on a number of factors that include cost of the finance method selected, duration of time the money will be required, legal status and financial outlook of the enterprise. Considering these factors will help in ensuring that the source of funds selected is the one that best fits the needs of the entrepreneur that matches the status of his business (Autio and Wong, 2005). References Autio, E., Ho, P. and Wong, K. 'Entrepreneurship, innovation and economic growth: Evidence from GEM data'. Small Business Economics 24(2005), 335-350. Bangs, Jr. The business planning guide: Creating a plan for success in your own business. (Chicago: Upstart Publishing, 1998), 109-21. Brenner, G., Ewan, J., & Custer, H. The complete handbook for the entrepreneur. (Englewood Cliffs, NJ: Prentice Hall, 1990), 45-48. Buera, F. A Dynamic Model of Entrepreneurship with Borrowing Constraints. (Mimeo: Chicago University, 2003), 65-76. De Meza, D. and Southey, C. 'The borrower's curse: Optimism, finance and entrepreneurship'. Economic Journal 106 (1996), 375-386. John, Conrad. Doug Perkins, a Success Story. New York Business Review, 2(1998), 13-18. Kirzner, I., 'Entrepreneurial discovery and the competitive market process: An austrian approach'. Journal of Economic Literature 35 (1997), 60-85. Knight, F. 'Profit and entrepreneurial functions'. The Journal of Economic History 2 (1942), 126- 132. Lazear, E, 'Balanced skills and entrepreneurship'. American Economic Review 94 (2004), 208- 211. Otani, K. 'A human capital approach to entrepreneurship'. Economica 63 (1996), 273 -289. William, Stolze, Start Up Financing: An Entrepreneur's Guide to Financing New or Growing Business. (NJ: Career Press, 1997), 128-37. Appendix Interview Questions 1. “What are your main sources of funds for your business?” 2. “What financial challenges do you face most when accessing funds to run your business” 3. “Considering that this organization is expanding day by day, how do you manage to keep up with the increasing financial needs?” 4. “Do you expect any financial support from friends, family or relatives to support your business?” 5. “Among all your sources of funds, which one do you regard as the best and why?” Read More