Assignment 5 Due 12/8/18 Saturday 11PM EST

Sources and use of funds

Pure Drinks company sources of capital are limited to the family and friends. The company is in the inception stage, and the lenders are not sure whether the business will operate as an ongoing concern. Like any other small company, the business will entirely depend on the well-wishers, family and friends and the business incubation forums (Romano, Tanewski, & Smyrnios, 2012). The company will evaluate the options available for funding future activity before agreeing to any source of finance. The following factors will be put into consideration.

The level of risks: Risks are the degree of uncertainty that pure drinks company will fail to meet its financial obligation. Therefore the business must take a source of funds that bear lower risks. For example, loans may have a higher risk compared to borrowing from friends and relatives.

The cost of finance: These involve what must be paid by Pure Drinks Company to obtain capital from the available sources. For example, owners’ equity will attract dividends while the loans will involve the interest payment. The company will only go for the source of fund that is sustainable to its operations both in the long-run and in the short-run.

The projections of the earnings: The stipulated Pure Drinks Company earnings must be enough to repay the capital acquired to run the business activities as well as funding the business operations.

Sources of finance for Pure Drinks Company

The sources finance for Pure Drinks Company are the family and friends, Kick starter platforms. The company will raise the amount of $ 20,000 from friends and relatives at a stipulated interest rate of 5% and payable within two years. The company also project equity capital of $ 45,240 from the financial investors. The composition of the financial investors is as shown in table 1. The company also intend to raise $ 700,000 from the kick starter platform to fund its various capital expenditure.

Table 1: Pure drinks Company Equity investors

The Uses of Funds

The company will use the funds to finance the business operational expenses like the sales budget, capital expenditures. The use of funds are as summarized in table 2.

Table 2: Pure Drinks Company Projected capital expenditures

Plan Assumptions

Assumptions are the business ideas that are presumed to be true before making any decisions. These assumptions will assist in developing strategies, plans and making the decision on the progress of Pure Drinks Company. Admittedly, the assumptions will help in disclosing any risk of uncertainty that is likely to undermine the performance of the business (McCormick, 2018). The following assumptions are to be put into consideration for the successful implementation of business plan.

Whether there is a need for the company product: With the intense competition in the beverage industry on the product prices, our company is likely to get a high customer turnout. The main plan will be to offer the customers a highly differentiated product at a relatively lower price. We believe the decision is essential in ensuring that the company retains the loyal customers for the future progress of the company.

Another significant assumption is whether the business can be profitable both in the long-run and the short run. Going by the business plan financials developed in section 1, the company is likely to incur losses for the first three months after which there is a projection of profit in the long run.

The business will higher the services of the consultants to help in making decisions on the business finances, marketing plans, sales and preparation of business reports for the first year. Mary Cates will be hired as a consultant at a cost equivalent to $ 10,000 while the other consultancy budget is estimated at $ 5,500. As the management, we assume that during the first year, the business will thoroughly engage in training the staff to equip them with the necessary skills to run the business and thus no consultant will be hired in the second year.

Pure Drinks Company may not entirely source the funds that can cover the business operating expenses. But during production, every departmental will be given the mandate of checking areas which have been over budgeted and distribute the resources to other business activities.

Break-Even Analysis

Break-even analysis is a point where Pure Drinks Company does not make any profit out of the business operation. At breakeven point, the company revenue matches the cost of the production processes. Table 1, shows the projected break-even revenue for the company. A close observation of the schedule indicates that the breakeven revenue increases with the improvement in the company activity volume.

Table 3: Pure Drinks Company Break even sales projection

References