Critical Perspectives on Business and Management - Assignment Example

Private Security Discuss the source of funding for the new venture and the rationale for using each source. The new venture needs to secure enough funds so that it can be able to set up the new business venture. In total, the business needs 4,000 USD to get established. At present, three quarters of the total amount (3,000USD) that is needed has been raised from personal savings, founders, family and friends. This means of funding entails acquisition of resources without having to borrow money from a bank and it has advantages as it will give the firm a good position to be able to seek equity capital from investors at a later time. The firm is currently seeking the remaining funds from venture capitalists, commercial banks, public stock issues and non- financial corporations. Additional options of where it is sourcing funds are from partnerships, client advance payments and vending. The firm also relies heavily on any of the funds that they have generated, second mortgages and credit cards (Krueger, 2002). The firm intends to use the start up funds to cover build out costs, purchase the necessary equipment and software and also to cover the facility. Initial costs of operating will also be covered by the funds, that is, taxes, payroll and utilities. The firm intends to spend forty five percent of the funds on assets so that the remaining fifty five percent could be spent on operations until it starts to make profits. Discuss whether or not the venture intends to accept government grants or guarantees as part of the capital structure. The new business venture tends to accept government grants or guarantees as part of the capital structure because it will receive huge monetary rewards from it which will be in millions of dollars. The venture will also find it easier to raise more money from other government and private sectors once it receives government grants. It will therefore have high chances of being prestigious, getting instant credibility and also gaining public exposure as noted by Krueger (2002). Government grants do no have to be paid back and when the venture accepts them it means that the government will have already done research on the necessary activities that will ensure satisfaction of the public needs. This may mean that the venture will have ready customers because of the great demand for its services and products. Discuss the ratio of debt to equity in the initial capital structure and the rationale for this decision. Ratio of depth to equity measures the amount of money that a venture should borrow safely over a long time period. This is done by comparing the total debts of the venture and dividing it by the total amount of owner’s equity. The result is the total percent of what the firm is indebted. In the initial capital structure of the venture, equity consisted of both the common and preferred stock and also the retained earnings and all these had been summed up on the account of shareholder’s equity on a balance sheet. The debts of the firm are equated to its liabilities and its components consisted of short term borrowings, the amount of operating leases, preferred stocks that could be redeemed and the long term debts (Krueger, 2002). For this firm, the debt is $1,000 while the equity is $3,000. This amounts to a debt: equity ratio of 1/3 or 0.333. This indicates that the firm has balance sheet strength and also a healthy capital structure which reflects low debt levels and high equity levels thus a positive sign of good investment culture. The firm will use its debts and equity in a reasonable and proportional manner making it possible to support its key assets. Discuss whether or not the new venture intends to go public The new venture intends to go public as it will be able to get the chance to access capital that does not have to be paid back and does not involve an interest charge. The venture will also be able to easily obtain capital that it may need for future investments through public dept and new stock offerings. Going public will also enable the founders and capitalists of the venture to cash out their investments which they had made earlier and sell the shares of equity in a special offering to the public or on the open market (Krueger, 2002). The venture will also benefit by going public as it will gain increased public awareness and this will open up new opportunities since it will be able to attract new customers. It will generate attention in the business press and as a result information about it will be printed in newspapers in the whole country. The venture will therefore have enhanced credibility with its customers, suppliers and lenders and this will create improved terms of credit. Another advantage that the venture will have when it goes public is that it will be able to use stocks to create incentive packages for its employees as well as its management. The venture will attract better talent in management and also improve its performance as the employees will have received motivation from the shares and options of stock that they are offered as part of compensation. The firm will also have easy access to acquisitions and mergers since it will be possible for it to offer stock rather than money. Prepare a break- even analysis for the new venture. A break even analysis deals with calculation of the total sales that are required to just cover the costs. A venture is able to break even when the totals of its revenues or sales are equal to the total expenses. At this point, the venture will not have incurred any losses or profits and it is also the lowest limit of profits when the firm is determining its margins. A break even analysis will focus on the fixed costs, the variable costs and the selling price per unit. Fixed costs do not change when levels of production or sales change, for example, rent, insurance and property tax. Variable costs are related directly to the units of production. Total cost of production will be gotten by adding total variable cost and the fixed costs (Krueger, 2002). Considering the monthly fixed costs for the business will be $400, monthly variable costs $300 and that it will sell the beauty products at an average of $20 per product. Under such a circumstance: Total Expenses = 400 +300 = 700 Given that each product is $20, the company will have to sell so many products to make neither profit nor loss. No of products required for the company to break even =700/20= 35 products. Reference Krueger, F. N. (2002). Entrepreneurship: critical perspectives on business and management, Volume 4. Taylor & Francis: New York. Read More