‘Money, Money, Money!

’
IBTEC Business Unit 3: learning outcome A

By: NOORA MAJID ALSUWAIDI

Gems Metropole School Motor, City Dubai
Introduction
This report examines several types of business finance available at distinct stages in
the growth of a business. As an entrepreneur I will try to Improve my enterprise about
the movement of capital within different businesses by being aware of the different
internal and external finance and produce solutions and problem-solving skills by
deciding on what type of finance suit a specific business by looking at several factors
that could impact finance.

Business finance is the raising and managing of funds by business organizations.

Planning, analysis, and control operations are responsibilities of the financial manager,
who is usually close to the top of the organizational structure of a firm. Business finance
can be important for many reasons such as generating profit for the business,
increasing number of assets for the business, exploring new products and markets,
managing the cash flow of a business to reduce and manage any risks and making sure
operational expenses are met.

Sources of revenue
Sources of revenue are features of the main sources of revenue received by a business
and factors that influence the amount received from each source of revenue.
Revenue can be received through selling activities, this could include cash sales, Cash
sales are those in which the buyer's payment obligation is met immediately. Bills, coins,
checks, credit cards, and money orders are all considered means of payment in cash
sales. A cash transaction reduces the seller's requirement to issue credit to a buyer. As
a result, there is no danger of severe debt. It can also be through credit sales,
Payments for credit sales are made several days or weeks after a product has been
delivered. Short-term credit arrangements are recorded as accounts receivable on a
company's balance sheet, as opposed to payments paid in cash right away.
Revenue can also be received from supplementary activities, this can be rental
incomes, Rental Income includes any money paid or due by renters to others for rates,
insurance, and other fixed charges that would otherwise be payable by the Insured for
services given during the Business at the Premises. It can also be through interest
payments on deposits, this is the continuous additional capital required depending on
the duration and commission received, for example social media. Commission is a
payment system based on a proportion of sales or other business done, or a payment
made to someone who works under such a scheme.
Business finance and types of business
This part of the essay focuses on the relationship between business finance and the
characteristics of a business, its objective and the stage in its development.
There are several types of business and various stages of development, the first is start
up, A startup firm is a freshly founded company that has gained a lot of traction due to
apparent demand for its product or service. A startup's goal is to develop quickly
because of providing a product or service that fills a market gap, in addition, a startup
business may solely focus on survival and survival in a market for the first year or so.
The second type is a sole trader, this is a self-employed individual who runs their own
firm or business. They can keep all of their company's profits after you have paid taxes
on them, and they are personally liable for any losses it the business suffers. They must
also follow certain guidelines when it comes to running and naming your company. The
third type is partnership, A partnership is a legally binding agreement between two or
more people to manage a business and share earnings and liabilities. All members of a
general partnership corporation share both profits and liabilities. The fourth type is
private limited company, which is a sort of privately held small corporate entity in which
the liability of the owners is restricted to their shares, the firm can only have 50 or fewer
shareholders, and shares cannot be publicly exchanged. When a business
incorporates, it becomes a separate legal entity. The final type is a public limited
company, which is a limited-liability corporation that sells stock to the public. Anyone
can buy its stock, either privately through an initial public offering (IPO) or publicly
through stock market exchanges.
Every business has specific business objectives that can vary depending on the type of
business and their development stages, this can include expansion, this is when a
business tries to be larger either by creating more stores nationally or internationally or
virtually via websites, this tends to be businesses that are rising or in the mature stage.
A business can also focus on product development, larger businesses tend to be forced
into this to maintain their customer satisfaction, this is for the purpose of benefiting the
customer and business and trying to stay at the top. Other objectives include market
development, that is when a business invest in the idea of understanding the market
and placing future strategies, this tend to be more occurrent in larger businesses with
more spendable profits and investments and other objectives like relocation, this is
when a business decides to move to a different location, and this could be in the interest
of the business to grow or raise their sales.

Apple
Apple Inc is a technology company, founded in 1976 in California, United states. Apple
is the largest technology company in the world. Specializing in consumer electronics,
online services, and computer software. Known for products such as their phones,
laptops, apple watch and their modern-day technology ideas. Apple is a public limited
company that allows the public to buy shares of the business by investing in business
success. Apples main aim is to create products that enrich people's daily lives. That
does not mean developing entirely new product categories such as the iPhone gadgets,
but also continually innovating within those categories. Apple tend to be in the maturity
stages most of the year as their release of a new product near the Christmas ever year
generates sales for a few months as customer buy them slowly and for a prolonged
period, however apple faces times where they fall under the renewal decline stage in
some months however they quickly face it and solve it by releasing a new product or
newer models.

Slate Kitchen and café is a startup restaurant in Dubai, UAE. It is in the startup stage as
they try and increase their customers and recognition by being more available to a wider
range of people, they have recently been offered and placed in delivery services like
talabat and goals are to grow and try to break even. Slate Kitchen only opened their
doors to the public on November 11, 2021 and has already generated monthly revenue
of 50k dirhams. The business is a private limited business with no intention of becoming
public in their future plans. The business is a small business with only 7 employees. The
business is becoming increasingly more recognized for their special dishes like their
loaded fries, burgers, and chicken wings.

Some internal sources of finance are the owner’s capital, retained earnings, sale of
assets and net current assets, etc. Some external sources of finance consist of
Mortgages, Overdrafts, Share Issue, Crowd Funding, Angel Investors, Venture Capital,
Debentures, Debt Factoring, Leasing, Invoice Discounting, Hire Purchase, Trade Credit, Bank
Loans, Peer to Peer Lending, etc. The ones mentioned in the reports will be given a detailed
explanation.

Apple's external sources of finance.

Apple is one of the most successful businesses in this century, with more than great
technology that people want. This is due to apples secure financial plan and capital
structure. Apple does not rely heavily on external financing for a couple of reasons,
which will be described in the coming paragraphs. This report will also describe the
external financing needs of Apple Inc, despite not relying on a lot of external finance.
Apple relies heavily on equity and debt finance which will be analyses throughout the
report.

The owner is freed of the need to fulfill the deadlines of fixed loan payments due to
equity, which is the sale of shares and the injection of funds into the firm by investors.
However, he must relinquish considerable authority over his company and frequently
meet with investors when making critical choices.
Advantages: Because there are no monthly loan payments set with equity financing, the
firm is at a lower risk. This is especially useful for new firms that may not have a
positive cash flow in the first few months. The second advantage is that, due to credit
issues, equity financing may be the only way to fund development. Even if debt funding
is available, the interest rate and monthly payments may be too expensive to be
acceptable. The third benefit is improved cash flow. Equity financing does not deplete
the company's cash reserves. Debt loan repayments deplete the company's cash flow,
lowering the amount of money available to fund expansion. The last benefit is that it
allows the company to plan for the future. Investors in the stock market do not
anticipate a quick return on their investment. They have a long-term perspective and are
prepared to lose money if the firm fails.
Disadvantages: The price, Equity investors demand a return on their investment. The
company's owner must be willing to share a portion of the profits with his equity
partners. The amount paid to partners may be more than the interest rates on debt
financing. The proprietor must give up some control of his firm when he takes on more
investors, which is the second disadvantage. Equity partners want to have a say in how
the company makes choices, especially large ones. The last negative is the possibility
for increased conflict; while making choices, all partners will not always agree.
Disagreements about management styles and various visions for the organization can
lead to these disputes. An owner must be willing to work through these disagreements.

Debt financing is a type of financing that involves borrowing money. Borrowing money
to fund a company's operations and expansion can be a good move under the
appropriate conditions. The owner does not have to relinquish ownership of his firm, but
excessive debt might stifle growth.
Advantages: More control; a loan is just temporary. When the loan is paid off, the
connection ends. The lender has no say in how the firm is handled by the owner. The
second benefit is tax deductibility: loan interest is deductible, while dividends paid to
shareholders are not. The last benefit is predictability. Because principal and interest
payments are declared in advance, they are easier to include into the company's cash
flow. Short, medium, and long-term loans are available.

Disadvantage: To qualify, the firm and the owner must both have satisfactory credit
scores. The second drawback is fixed payment, which means that principal and interest
payments must be made on a regular basis. Businesses with erratic cash flows may find
it challenging to make loan payments. Sales declines might make it difficult to satisfy
loan payment deadlines. The third drawback is cash flow; taking on too much debt
increases the risk of the firm not being able to satisfy loan payments if cash flow drops.
Additionally, investors will view the firm as a bigger risk and will be hesitant to make
future equity investments. The fourth drawback is collateral. Lenders often ask that
specific firm assets be retained as collateral, and the owner is frequently needed to
personally guarantee the loan.

The requirement for monetary inflow from a source outside of the firm is known as
external finance. This can be accomplished by taking on debt, such as a bank loan. It
can also be done through equity, which is the sale of stock. Apple may have accrued
debt by selling bonds years ago, but it remains one of the most cash-rich firms in the
world, with over $18 billion in cash revenue in 2016. It implies Apple won't need to rely
on outside money to keep its inventory stocked. This may be accomplished by keeping
inventory low, collecting money rapidly, and paying suppliers slowly. As a result, this
arrangement maintains Apple's cash flow strong and eliminates the need for outside
financing.

Apple's high cash flow strategy, along with its "asset light" structure, makes it an
attractive firm to collaborate with for suppliers. In addition, Apple's subscription business
generates consistent revenue. Apple's future external funding needs are unlikely to be
large as a result of these considerations.

If Apple required cash from a third party, they could readily get them because to their
strong capital structure. The greater solvency of Apple would lower the danger of
borrowing from outside the company. They might also readily sell stock because they
have a high equity rate. In reality, Apple has been repurchasing its stock without
needing to take out a loan. With the 15-20 billion dollars in cash on hand, Apple would
not need to borrow if they needed money immediately. Furthermore, Apple has about
$40 billion in short-term marketable securities, often known as investments, that may be
converted into cash within five years. Although Apple has had success with these
tactics, other smaller, less marketable businesses may not have had the same success.
If Apple's efforts are extremely effective or if they finally fail, only time will tell. As with
prior portions of this analysis, the relevance of Apple's subscription services to the
company's consistent cash inflow and cash flow should not be overlooked.

Apple’s Internal finance of finance

Apples doesn’t often depend on internal finance like smaller business do, this is
because they don’t need to depend on internal to grow and expand, however the
business does finance their future plans on electronics and new products by using the
revenue they earned from their other products, this allows the business to re-invest a
percentage of their capital to dominate the market, they could also use this to pay for
employees, adverts, sponsorship and overall growth and business recognition.

Slate’s external sources of finance.

Slate claims to use leasing as one of their external sources of finance. Leasing is the
process of renting an asset rather than buying it if needed for a business. A Leasor is a
person that may own the asset, however, decide to lend and allow the asset to be used
by a lessee, who in return pays periodically for it. Slate uses this process called leasing
to house employees in apartment accommodation.
Advantages: some advantages consist of avoiding risk, this is because the business
avoids ownership. Since slate is a startup business, they tend to be financially
pressured and being able to reduce the risk of debt is vital for a startup business as the
hardest year for businesses is the first year. Ownership can avoid the massive
investment of money into the asset. It indirectly keeps the economic pressure low and
therefore allows opportunities for borrowing money to remain open for business.
Second reason is that slate can already increase their quality asset, since assets are
rented, it is more affordable and allows slate to product superior quality products from
the start, if not they would be unable to buy the assets due to the price and will have to
slowly increase their quality. This also allows slate to build a good brand image from the
very beginning, since slate uses leasing for housing this eliminates the fear and allows
the business the grow in faster rates as they are more focused on the business rather
than paying for all other cost in large chunks which could be financially limiting for a new
business. Another advantage is a balanced cashflow, payments are fairly spread out
and could be paid across a few years, therefore eliminating the burden of paying a large
amount at once which could cause the business to be stressed before even running.
This maintains a balance and steady cashflow which increases the chances of success.
Disadvantage: However, leases tend to be long-term agreements which could be a
burden on any business as the agreement is unchangeable and the expenses over the
few years are fixed. Therefore, if an asset does not serve its purpose anymore and is
not required in a business the assets suddenly become a burden on a business as
payments will still have to be made despite not being useful for the business anymore.
Another disadvantage is that if a business seeks out a future investor, the process will
be even more challenging as leases are seen as a long-term debt where investor don’t
tend to like, this is going to be even more order as this is a new business and receiving
any investor will be an extra challenge.
Slate claims to use invoice discounting, this is when a business uses their unpaid
account recievables as collateral for any loans they may take.This is considered as a
short term type of borrowing. However the finance company can change the debt
outstanding amount once change occures in the collateral accounts. Companies with a
high profit margin are the best candidates for invoice discounting, as they could easily
handle and manage the higher interest charges this form of finance does. It is also the
best fit for high profits business like slate, which has a revenue of +50k monthly for a
new business in Dubai, therefore their rapid growth suits this type of finance, which
therefore means good cash flow to fund additional growth.
Advantages: this benefits business who need immediate cash and are faced with a
shortage of cash, this is because this type of finance increases cash flow from
customers. Instead of customers paying on normal credit terms.
Disadvantage: invoice discounting tends to be most business last resort when it comes
to choose a specific finance , and only useually occure when a business is denied any
other types of finance. This is because of the overwhelming fee that comes with it. This
type of finance could also be a risk for new businesses with lower margins, because of
the interest in the debt which could ruin a business's plans and prevent them from
making profits.1

Slate also uses bank loans to fund for some larger projects involved in operating a
business in an expensive city like Dubai. This along with owner fund and other finance
to help pay of some major payments that needs to be paid before running the business
this could be all the salaries of employees which tends to expensive, for example a
chef’s salary stand at 8k a month which could be quite a burden for a business still
figuring there management. A bank loan is a type of finance when a business borrows
capital from a bank fully, however, it is expected to pay the full amount and additional
capital due to interest in the future.
Advantages: loans tend to be a long term payment and not on demand this allows new
businesses to slowly pay it off and gives them more chances to invest first and grow
and make profits before paying it off. Despite having to pay your interest on your loans,
you do not have to give a percentage of your profits and assets, which maximizes the
control the business has over their earnings and allows them to have more choses on
their investment choices.
Disadvantage: larger loans that start up businesses may need will have stricter
restrictions and terms the business will have to adhere to. Loans are also not very
flexiable and for new businesses that are trying to survive, this could be a massive
barrier that limits their pace of growth and the amount of growth businesses need to

1Bragg, S. (2022, January 24). Invoice discounting definition. AccountingTools. Retrieved

January 25, 2022
cover to prevent build up of debt or failure. Some cases, loans can be secure and could
mean that your assest could be at risk of loss if loans are not payed for in time, this
could include the owners personal assests like their house, cars etc. Which could be a
concerning risk. Finally, if loans are not paid for, which tends to happen with new
businesses that are unaware of the future predicted growth of the business, banks can
add additional charges which could cause the business to enter a vicious cycle of debt.2

Slates’s Internal sources of finance

The internal source of finance that slate uses is owner funds, the business is a private
business and is run by family members. The owners uses retained profits and there own
personal capital and fund to invest in the business to start. Since the business has only
started a few months ago the owners used their saved capital to help the business start
and prevent from external help as much as possible.
Advantages: The owners wont be in debt and wont must owe money to third parties
like the bank as they use their own capital to supply the business. Owner funds are a
safer alternative and provides more flexibility as they will not have to think about
returning capital to anyone, they there can decide freely on how to spend the capital
and build a future plan. The business can also eliminate problems with the government
or law suits as they wont be invovlded in borrowing any money outside the business.
The business can also have a clearer idea of what and how their investing and if it is
worth it and therefore won't be trapped and forced to commit.
Disavantage: personal fund might not be enough to fund a start up business as there is
many secotrs of the business that will need to be paid off. It is more risk, this is because
if personal capital of an owner gets lost when providing for a new business, the owner
will not have any of the capital back and will have to build from the beginning, however if
taking it from a third party they can pay in installments, this leads to the idea of growth
as larger businesses tend to get capital from outside their business to grow fast,
however if a small business relys solely on owner’s fund they may not grow fast and not
fast enough to generate revenue for the investment. This means the business is having
a slow start which initially will lead them to minimal progress, shortening their success
chances.
The business could use Retained Earnings, this is the capital left after a business pays
direct and indirect cost of running the business. An advantage of using retained
earnings is that the business is allowed to strategy the finance accordioning and
prevents the business from overspending and unorganized invest which could lead any
business to drown in debt, especially a new business with no solid customer base and
loyalty, however the disadvantage to this is that the business may re-invest back to the

2NI Business Info. (n.d.). Advantages and disadvantages of bank loans | nibusinessinfo.co.uk.
Retrieved January 25, 2022
business and therefore may not have enough emergency capital to secure the business
if anything does go according to plan, this tend to be common in smaller business as
there new to the market and is vulnerable and needs emergency money to ensure the
business can still survive if the market dynamic changes.

In conclusion, this report has clearly shown the different approaches to finance
between businesses and how their position in the market can affect their choices. In this
conclusion, I, an entrepreneur, itching to start my own enterprise will give the most
recommended source of finance for both Apple and Slate’s kitchen and café in order to
increase my business finance understand and suggest the best outcomes with
appropriate reasoning.

Both businesses are opposite businesses in the spectrum, apple being in the mature
stage, there plans include massive innovation and growth and therefore depend heavily
on external sources rather than internal. The most suited external source of finance
concluded from the information gathered in the report is equity, A business with such an
aggressive growth plan like apple, they need to depend on a high cashflow that Internal
finance cannot meet. Despite this meaning that people can buy shares of the business
and therefore gain a bit of control, which can limit business productivity. The
advantages out ways the disadvantages as they could easily buy those shares back
and will receive more cashflow in the business than their losing, maximizing their ability
to expand and compete with other worldwide mega businesses. Because apple not
heavily depending on Internal businesses, their Internal options are minimal, however
This report has been able to detect the most suited Internal sources despite this. The
most suited Internal source would be the revenue they earn from their products, Apple’s
sales booms around Christmas time because of the releasing a new product every year
and Christmas. However, with this massive and sudden increase in cash flow the
business could use this to invest heavily in their future businesses plans and massive
innovative projects in order to stand out as other technology companies makes apple
normalized.

However, when suggesting the best internal and external business for Slate, the
direction and approach can vary, this is because the business is in the beginning start
up stages and is simply aiming to survive the first few years and is therefore less
experienced and have less revenue to invest on whatever they please. Therefore, by
enabling my entrepreneur skills, I have concluded that the best external finance for this
business will have to be leasing, this is because for a new business they have an
extended time to pay for assets and by allowing them to have a longer period of time,
they can jump start the new business earlier and compete faster without working on the
fixed cost at the start. This also gives the business and owners of Slate security as if
anything happens in the business first year, they will not have heavy investment regrets
as everything tends to be renting, this also allows the business with flexibility as they
make vital decisions and get to solidify their plan and direction of the business. The
report also suggest that the most beneficial Internal source of finance for a small
business is retained earnings, this outweighs owner's funds as it allows the business to
be able to control their capital and budget accordingly without overinvesting in the start,
it is a lot safer for the owner as if the business does not survive in the hardest year,
which tend to be the first year a business runs, the owners won't have great debts. This
also allows the new business to have a concrete finance skill to be able to budget and
allow the business to run and be able to have clearer visions and what to invest next as
most owners of new businesses invest their retained earnings and owner funds
straightaway without monitoring the businesses opportunity and market.

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