Assessing Sources of Finance
Firstly, Chloe and Sarah should consider business loans, which is the most popular form of business financing for start-ups (Peirson et al., 2014). In essence, by using loans, they have an opportunity to retain their equities, which is 70% for Chloe and 30% for Sarah. They do not have to include another investor, who will subsequently demand equity. They can obtain loans from banks. Secondly, the option of gaining an investor, which will see each of them have a lower equity in the partnership, is also a viable source of funding, especially when the investor will propel the business to new heights. Thirdly, they can consider support from their family members or their relatives. Essentially, there has to be someone who is supporting them, and the advantage of this type of funding is that it may not require returning the capital (Peirson et al., 2014). However, they can consider a mixture of three strategies, which will enable them to acquire the necessary finances to start the business.
The Costs of Running the Business
Currently, Chloe does not have to spend much capital because she primarily does the nosiness in her home. For this reason, she only has to buy ingredients and the pram that she can use in transporting the meals. Essentially, from the BBC News Magazine by Susannah Reid, it is clearly that the business she does is street trading where she does lunch deliveries within her community. She has to work hard because it is the only source of income because she had to quit her teaching Job after her daughters illness. Essentially, the whole instigator of starting the Seven Sisters Spices was her daughter becoming ill from lymphoma. As such, the costs of doing business in the kitchen at home would be tiny compared to when she expands to a partnership, which will require a new kitchen elsewhere is Lewes, which would significantly require new prams for her and Sarah Edwards, her partner in the new business, and also her sister.
For the conventional way of her doing the business, she would only require a pram and ingredients of making the food. She can use her kitchen instead of renting a new business. For ingredients, Expatistan (2017) provides the approximate cost for food items. The cost of dairy products are 0.93 per liter for whole fat milk, tomatoes per kilogram are 2.56, local cheese costs 4.94 per 500 grams, 1kg of potatoes and apples cost 0.88 and 0.1.9. One bottle of red wine costs 9. Bread for two people is 0.92. 12 large eggs cost 3.11. Also, meat costs are variant. For instance, at Sainsbury, BBQ burger, butchers choice at 454g is 2.5 per unit, 285g Ribeye steak costs 6.5 per unit, 12 Richmond thick pork sausages cost 2 per unit while Sainsburys king prawns in garlic and parsley cost 3.5 per 220g.
For fruits and vegetables, Sainsburys two avocados per unit, which is ripe and ready, costs 1.9. Ruby jewel tomatoes cost 1.4 per 330g; golden kiwi x4 costs 1.7 per unit while a large mango costs 0.85. Dairy products cost an average of 2 per liter. All other items are readily available in the kitchen, including refrigerator, freezer, ovens, and utensils among others. Also, the cost of the pram, which she bought costs approximately 500. However, she would need additional utensils that can handle the business, which would cost her around 750, based on the expenses of Sainsbury (2017). She would also need to obtain permits of food selling and distribution, which as the Lewes District Council, approximates 800. The costs of doing business before the partnership is highlighted below:
Ingredients (Dairy, meat, vegetables, spices) 600 monthly
Pram 500 once
Additional utensils 750 once
Total costs 2,650
On the other hand, starting the partnership with her sister would require all items she used in her previous street business, as well as an additional pram that can be used by her sister. For a refrigerator that is large enough to support the running of the business, the average cost from Argos stores is 499, for a freezer, 499. Ovens at Argos stores (2017) cost approximately 600. Gartenstein (n.d) highlights that the cost of outfitting a commercial kitchen for a small food business ranges from $15,000 to about $100,000, which will be inclusive of plumbing for a mop, hand, prep, and dish sinks required b the local health departments. Also, it will also be inclusive of ventilation. Furthermore, the business will need permits. That cost when transferred to the Seven Sisters Spices, would be approximately cost 10,000. Besides, according to Lewes District Council, the business should acquire permits and licenses for cooking food, selling food, storing or handling food, preparing food, and distributing food, which will cost approximately 2,000. Also, she would also need to pay for water, rent, electricity, as well as rent. For this reason, the approximated costs are highlighted below:
Pram (Additional for her sister) 499
Kitchen cabinet 10,000
Permits and Licenses 2,500
Water 100 monthly
Rent 800 monthly
Electricity 100 monthly
As such, it can be derived that the cost of doing business as a partnership would be great compared to that when conducting the business at home.
2.1. Ways of Improving the Management of Cash Flows
Chloe needs to improve the cash flows of the company for it to be profitable. In essence, the business owes money to suppliers who are threatening to stop supplying her with stock and supplies. On the other hand, some clients have not paid her. Money owed by the Partnership to different suppliers is 2,500, money owed from customers is 252.00. For this reason, the cash flows for the partnership are not that great, and the business can be on the verge of making losses if the situation is not rectified. Various ideas can help them improve the current situation.
Firstly, Chloe and Sarah need to evaluate the terms with the suppliers. In essence, from the case, it is clear that the business owes money to them. By evaluating the terms, Chloe and Sarah will have to extend the time they use to pay them up. If it was taking three weeks, it should now take six weeks. In essence, this action is justifiable because it will enable them to accumulate money from the business profits, as well as allowing the clients to pay up (Storey and Greene, 2010). Ideally, the strategy will enable the clients to pay up. In effect, this will allow the partnership to accumulate enough funds as it positively impacts the cash flows, and thus, they would also pay the suppliers in time.
Secondly, they should consider enforcing payment discipline. Essentially, this means that the clients should pay up in time. The partnership has to increase pressure on them so that they can pay up in time. Additionally, they should place strict rules on payment so that clients pay up once they are serviced. It is justifiable because it will allow the company to increase its cash flows considerably, which will impact the partnership positively in the next six months. Essentially, this will be facilitated by allowing the business to accumulate more operating capital and profits on a monthly basis.
Thirdly, Chloe and Sarah need to segment the suppliers, inventory, and clients. They need to renegotiate better terms and discounts when they separate regular versus one-off buyers suppliers. Also, the biggest customers might be the worst payers, and thus, a better payment approach is required, say by approaching them once their due date is near. In addition, they have to revise the inventory so that they can just keep what they need in the next few days. It is justifiable because the company will spend less and have more profits. In effect, the cash flows will improve, thereby allowing the partnership to thrive owing to its profitability.
Argos Stores (2017). Freezers and Refrigerators. [Online] Available at http://www.argos.co.uk/m/static/Browse/ID72/33016098/c_1/1%7Ccategory_root%7CHome+and+garden%7C33005908/c_2/2%7C33005908%7CLarge+kitchen+appliances%7C33008255/c_3/3%7Ccat_33008255%7CFridge+freezers%7C33016098.htm; http://www.argos.co.uk/search/freezer/ (Accessed 02 May, 2017).
Expatistan (2017). Cost of Living in London. [Online] Available at https://www.expatistan.com/cost-of-living/london (Accessed 02 May, 2017).
Gartestein, D. (n.d). The Estimated Cost for a Commercial Kitchen in a Small Business. [Online] Available at http://smallbusiness.chron.com/estimated-cost-commercial-kitchen-small-business-74630.html (Accessed 02 May, 2017).
Lewes District Council (n.d). Food business registration. [Online] Available at https://www.gov.uk/food-business-registration/lewes (Accessed 02 May, 2017).
Pramworld (2017). Prams and pushchairs. [Online] Available at https://www.pramworld.co.uk (Accessed 02 May, 2017).
Peirson, G., Brown, R., Easton, S. and Howard, P., (2014). Business finance. Sydney, McGraw-Hill Education Australia.
Reid, S. (2017). The woman who delivers lunch from her pram. BBC News Magazine. [Online] Available at http://www.bbc.com/news/av/magazine-35244654/the-woman-who-delivers-lunch-from-her-pram (Accessed 02 May, 2017).
Sainsbury (2017). Meat and dairy products. [Online] Available at http://www.sainsburys.co.uk/shop/gb/groceries/dairy; http://www.sainsburys.co.uk/shop/gb/groceries/meat-fish (Accessed 02 May, 2017).
Storey, D.J. and Greene, F.J., (2010). Small business and entrepreneurship. New York, Financial Times/Prentice Hall.
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