Auto Universe Auto Parts Store attends to the needs of its diversified clientele in the auto parts marketplace and it serves those in retail as well as wholesale. The products the company offers for sale include but are not limited to car locks and alarm systems, car mirrors, tailgates, radiators and accompanying components, bumper parts, catalytic converters, exhaust systems etc. the company also provides a wide range of services in Auto Body styling as well as restorative services.
A summary of the financial needs of the company as well as the application of funds
For the first financial year, Auto Universe Auto Parts Store needs $6 million so as to meet both its fixed as well as variable costs. Below, I come up with an outlay (for the next 12 months) of the amount of money I need on a monthly basis as well as the income estimates for each of the 12 months.
|Months||Money Needed ($)||Income estimates ($).||Deficit ($)|
To expand and exploit its full potential, Auto Universe Auto Parts Store must seek finances and in that regard, emphasis shall be laid out on the two main sources of funds i.e. external sources and internal sources. T is important to note that when it comes to seeking sources of funds (especially external), the business must show relatively high probability of success. At this stage, a wide range of sources of finance shall be explored so as to enhance the chances of Auto Universe Auto Parts Store in sourcing for the same.
The company would consider approaching a wide range of financial institutions including but not in any way limited to commercial banks. It is however important to note that when it comes to sourcing funds from commercial banks, the same shall be short term though negotiations may be made for medium term financing.
The other external source of funds the company may look into is venture capital. This may include approaching various firms or individuals who may be willing to put some money into the business based on its profitability after which arrangements may be made for profit sharing. Venture capital would be appropriate as it is basically a long-term source of capital and may not be needed back by the venture capitalist as in the case with bank loans.
It is also important to note that Auto Universe Auto Parts Store may benefit from personal savings I have accumulated over time. The amount of money I have accumulated over time inform of savings may not be a lot but when combined with the other sources of finance (both internal and external), they may be adequate to over the various initial needs of the company i.e. operational costs. I can also approach friends and family for short term loans but this shall be done with the realization that I have to prove my ability to repay the amount they advance to me inform of a loan.
When it comes to the internal sources of funds, Auto Universe Auto Parts Stores may look at the various options at its disposal. For instance, several months into operation, the company may choose to use retained earnings as a source of fund. According to Banks (2010), retained profits include all the profits which are not distributed to the owners of a business. These profits may instead be held back by the entity so as to cater for the various financial needs of the company. The main advantage of internal sources of funds include their cost as in its considered to be a cheap source of find as the business does not have top repay the same with an accrued interest as is the case with a bank loan.
Trade credit is another source of finance Auto Universe Auto Parts Store would wish to exploit. Essentially, it includes negotiating for discounts from suppliers. The company gets its products directly from the manufacturer and in that regard, our ability to get the same in bulk may put us at a higher pedestal when it comes to negotiating for favorable credit terms. The advantage of this source of finance rests with its relevance especially when a business is starting out. However, it is important to recognize that as a relatively new venture, Auto Universe Auto Parts Store may find it a little hard to convince suppliers it can pay on time.
At the time, Auto Universe Auto Parts Store faces competition from only three main players. However, to remain relevant in the marketplace, Auto Universe Auto Parts Store shall seek to sell its products at a discount so as to attain market dominance.
Banks, E. (2010). Finance: The Basics. Taylor & Francis
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