Sole trader companies are the ones which are opened individually. For example, there is one person and he fascinated about doing business so he can invest money into the business and he has to do it by himself. It means he has to find out where can sources of finance come and how to control it because he must work by himself without shareholders. There are some sources of finances as follows: * Retained earnings: this is profits of a company after removing taxes, salaries and expenses or something like that and this source should be applied after few months from the beginning.
For example, after removing all of expenses like sundry costs, training courts costs we have the balance in our savings account about 9500 pounds. Pizza hut can use that money actively to purchase for their raw materials it is also an advantage of them when they can control their expenditure and save some money so that they can use their money without thinking about charging fees or interests. However, if they base on the money which is saved too much they are going to meet problems because the situations of company will be different depends on different economics phase so they need to think of some ways to make sure that saving money will not take a lot of place in their account.
* Selling assets: in case the entrepreneur set up their business but they have problems in capitals so they should sell some products to get money to invest and getting profits. For example, pizza hut can sell their old machines, equipment, or even their own logo. This is seemed to be a risk way because after selling assets they will be lose their control in their business a little and it can lead to situations of having not enough assets to support for producing.
* Personal capital: The owners can invest their own money into business for expansion. This will prevent him from the burden of interests from borrowing and he or she can control their business by himself or herself without depending on others one.
* Debt finance: it is often used when people start to set up a business, entrepreneurs will ask for borrowing money from their families and friends first and finally then they will ask for borrowing from others business’s helps. In short, debt finance is used for subscribing the borrowing action of a business to report for their productions. In case Pizza hut is a Public Limited Company
Public Limited Companies is the ones which are created from 2 or more than 2 persons. And those persons are called shareholders and each shareholder will own a part of the company which is depends on their financial ability by the ones called shares. The more shares you owned the more donation you have in control of company. By this way the company can mobilize capital easily and there are some sources of finance as follows: * Issuing shares: business can collect money by issuing shares to stock exchange and outsides the business there are going to be some people want to invest money to make profits for themselves so they can use their money to buy the shares and by that way the business can get money and for the person who invested money they will have a position in the business and they will receive dividend each month.
* Venture capital: venture capital is becoming increasingly important sources of finance for growing business. This can be done by individuals or groups of shareholders, they have to look for a lot of potential companies or projects and making decisions exactly is not being lacked of. Otherwise, they can easy to meet debts for dividends for example or they can go to bankrupt because they are lost a lot of money for failure projects.
* Bank loans: Business can raise their fund by borrowing money from banks and this is seemed to be a good way to get money immediately. However, the business has to think a lot about the interest rate and the repayment ability in case they don’t want to go to bankrupt because of debts. And, business consider loans as long or short term plans to support their business and the considering is depended on the purposes and the amount of money the business want to borrow. For instance, if the business had 1 billion and they borrow 100 million, it would be considers as short – term loans because the amount of money they borrowed is not main money for projects because it too small compare to 1 billion.
1.2 Advantages and Disadvantages
* Debt finance:
Advantages: everyone when they want to set up a new business so borrowing money is very necessary because it will help the entrepreneur feel more confident and they are going to be stronger in doing business. Disadvantages: besides, they have to think about ways of repaying loans to others. The reason is that they will create a trust and increase their reputation so that they can borrow in next times easily. So, doing business is not always favorable so it requires businessmen to think about ways of existing a lot and when they go to bankrupt there will be not easy for them to face with creators and in the worst case they can be a prison.
* Issuing Shares:
Advantages: businesses can raise their funds easily by issuing shares and they can expand their business as well. This mobilization capital will not create a debt which the business has to repay. Besides, issuing shares can help business attract and keep good force of staff and the business can connect to potential partners.
The businesses have to accept high fees of issuing. Issuing shares can disperse the ownerships, controllerships and revenues as well.
* Bank loans:
Advantages: Bank loans are seemed to be a good resources for a business to raise their funds because the business can get mortgages from bank easily and the mission they need to complete is that try to earn profits as much as possible to repay. Disadvantages: In case, the business make lost so that will be a really big issue because if they did not repay on time they will lost their assets but the thing is they have to delay the debts and that’s the reason for interests are going to be increased immediately and the delayer the more interest. Finally then, the more money cannot be paid the more risks of bankrupting.