A Business Venture of Setting Up a Sports Center - Term Paper Example

PROJECT INDIVIDUAL ESSAY] This essay carries out acritical assessment of the funding bodies, which are available to fund the start-up of a sports centre. The sports centre will focus on low income people, elders and disabled. After evaluation of the available funding bodies, an ideal funding body that is most likely to invest in this business is chosen, with justifications. In this essay, factors that make the sports centre for low income people, elders and the disabled attractive to the potential funding body are also explained. Introduction Setting up a venture is a challenging task. This is because broad objectives for the venture may be set for the venture without sufficient cash to stay in business long enough to achieve those objectives. Cash for a start-up is like oxygen for the business, without which it dies. Therefore, it is extremely imperative for start-up ventures to have business strategies that are aligned with funding realities (Blumberg & Hindi, 2013, P, 184). This essay evaluates the funding bodies that are available to finance the start-up of a sports centre, which will focus on low income people, elders and disabled people to identify and choose the funding body that is most likely to invest in this business. The essay also explains the factors that make the sports centre for low income people, elders and the disabled attractive to the potential funding body. Available Funding Bodies Friends and Family There are various funding bodies that are available to fund the start up of this sports centre. First, funds for start up can be sourced from friends and family. In case family members are rich enough to raise £100,000, they can be approached for assistance. Alternatively, business colleagues and other, familiar business people may be approached (Root & Koenig, 2006, P, 85). Personal savings, family and friends are common options for raising capital for small businesses such as this sports centre for the old, low income earners and the old in the United Kingdom (Parker, 2009, P, 250). When one seeks to source funds for start up ventures from friends and family, s/he is relieved the burden of having to deal with banks and their formal procedures. Sometimes the source of funding from friends and family needs to be formalised so that the friends or family take a small share in the ownership and future returns, rather than expecting their money back in the short term (Robin Lowe, 2007). In addition, family and friends offer valuable knowledge. Private funders will usually take and accept more risk. This is because the venture involved and its initiators or owners are personally known to those who provide cash, whether as investors or lenders (Reuvid, 2011, P, 243). They are also more understanding when events do not go as planned. Family and friends are also less likely to have to provide a return. As a result, they may not be picky and are likely to be less experienced in analysing small businesses. Therefore, more money can be gotten from them. Also, friends and family members are also easy to find, because they are already known by the owners. On the other hand, raising funds from friends and family has its demerits. For instance, raising funds through friends and family forces the owners of the start-up business ventures to mix business with personal life, affecting future performance of the business. Also, when funds are obtained from friends and family needs to be formalised so that the friends or family take a small share in the ownership and future returns may affect the future of the venture when it wants to go public. Friends and family members may not have superior connections, compared to angels or venture firms. Finally, most of the friends and family members are not accredited investors, and this will complicate business owners’ life later as the venture grows. Angel Investors Another source of funding that is available for this start-up sport centre is angel investors. There are numerous business angel networks and groups across the United Kingdom. These businesses are members of the British Business Angels Association (Reuvid, 2006, P, 157 and Muljadi, 2012, P, 18). Angel investors are rich, private people who have the potential of lending their money for start-up ventures. One of the advantages of using this source of finance is that these people seem to understand one’s situation better. They know the huddles that are associated with raising start-up capital. Angel investors are also a source of contacts and advice. This is because angel investors have been in business for long and they have long term experience. They can use the insights that they have learnt from previous investments to offer advice to first time entrepreneurs. Some angel investors are known to charge first time entrepreneurs money to pitch their business ideas to them. This means that as entrepreneurs seek start-up capital funding, they have to look for some funds to pay a fee of pitching their ideas to prospective angel investors. This may be burdensome for first time entrepreneurs who seek to start ventures, but have limited access to funds. Individual angel investors have less reputation to protect entrepreneurs, especially firs timers. On the contrary, angel investor groups or investment firms have a remarkable reputation of protecting their first time entrepreneurs. This is because, future and potential entrepreneurs will not seek assistance from such firms, if they get word that such firms failed to offer protection to particular investors. Therefore, they have to guard their reputation. However, angel investment groups have tedious formalities and rules that have to be adhered to while seeking start-up capital funding from them. On the other hand, individual angel investors do not have to follow all the rules, they can allow entrepreneurs to sell stock directly to investors and get cash. Bank Finance Banks can be approached to offer their funding for the start-up of a sports centre for low income earners, the elderly and the disabled. Bank finance is common (Sherman, 2012, P, 137). Banks provide credit in terms of bank loans. Sometimes one can seek a bank overdraft to finance a start-up project. Banks are a reliable source of start-up capital in cases where the business is creditworthy, and is expected to be a viable business. Loans are advantageous because they take a longer period to repay, giving the business sufficient time to generate returns, which can also be used to repay the loans. Overdrafts are flexible but they can be stressing, especially when banks demand overdrafts to be paid at any time. This means that bank overdrafts are less secure. As far as small businesses are concerned, bank finance has not been the best source of funding for start-up capital. Banks have turned off viable businesses, denying them credit. It should also be noted that there are many formalities that are required during the process of securing funds from banks. For instance, start-up venture have to submit a comprehensive business plan so as to prove that their business is viable, and that they have a strategy for repaying. For new businesses, it becomes even more tedious because the business is untested. Banks have to perform credit referencing checks on all the directors of the start-up venture before lending. Peer to Peer Lending Entrepreneurs can obtain loans from private lenders through an intermediary network. It is a large network that is readily available. This mode of funding does not involve dealing with banks, thence formalities are avoided. Secondly, lenders can be more sympathetic, in terms of understanding the realities of running a business, especially for the first time. The lenders have a keen interest in the life of the business venture that they fund. It is a cheaper method of raising start-up capital, compared to bank finance. Peer to peer lending is characterised with high charges because the rates paid are based on a flat fee. Some lenders may restrict the time for which a pitch can remain live. One may have a very short period of time to secure all funding. Some platforms can only lend to businesses with an annual turnover of £100,000 and more. These firms must also have at least two years of accounts filed at the Companies House. Government Grants and Loans In the United Kingdom, there are various government grants that are available to small and growing businesses. A start-up venture can seek funding from this source. This is because government equity is more important at the start-up stages of a firm (Bhaird, 2010, P, 37). These grants do not have to be paid back. These grants favour younger entrepreneurs because the government has backed up a Start-Up Loans Company to support projects with more than £100 million. These funds are meant to be used in funding projects, businesses and investments made by entrepreneurs who are eighteen years to thirty years of age. The loans are cheap and unsecured. However, they are only granted to strong business plans only. Apart from getting the loans, business owners benefit from an extensive mentoring programme. The programme helps entrepreneurs to obtain practical insights with issues such as financial forecasts and growth strategies. A government grant or loan requires that young entrepreneurs should have a strong business plan. Therefore, a comprehensive and convincing business case should be presented. Grants are very view and the criteria for qualification is stringent. These factors narrow the chances of a start-up venture obtaining loan. The reason for this is that young and first time entrepreneurs may lack the necessary requirements for obtaining a loan. The formalities that are involved in the process of applying for a government grant may be burdensome and discouraging for young entrepreneurs because they may be doing this for the first time, and lack the require knowledge. The Ideal Source of Funding Friends and family is the most likely source of funding that can be invested in the start-up of a sports centre for low income earners, the elderly, and the disabled, which requires a capital base of £100,000. There are various reasons for making this choice out of the many options that are available, and have been discussed. First, getting funds from friends and family, does not involve tedious formalities, as is the case for the rest of the funding sources. In this case of a sports centre for low income earners, elderly and disabled people, no bank formalities will be involved. Second, sourcing funds for start-up of a sports centre for low income earners, elderly and disabled people from friends and family may be formalised so that the friends or family take a small share in the ownership and future returns. This means that we will not have a short term liability, in which case we will have to return the money. In addition to providing funds for the start-up of a sports centre for low income earners, elderly and disabled people, our family members and friends will provide us with valuable knowledge in terms of investments, forecasts and growth of business. . Third, friends and family members are always ready to accept the risk involved and lend their money, without the requirement of collaterals, for the start-up of this sports centre that is meant to serve low income earners, elderly and disabled people, compared to other sources of finance which will require security. This is because the sports centre to be started is known by our friends and family members. These friends and family members also know us personally, and they are the ones to provide the cash. Therefore, there will be no tedious formalities involved; we only need to ensure that the business venture is viable. Friends and family members will understand better when events do not go as planned, concerning performance and returns from this sports centre in future. Friends and family members will not undertake us through tedious analysis of our business, and as such, we will get more money from them. It will be easy to find family members and friends who are ready to fund the start-up of this sports centre, and we can approach friends who have been in business and have experience to provide us with rich advice on investments. This business venture of setting up a sports centre at Surrey is an attractive venture that will exert a pull on the potential funding body because of various reasons. First, the idea of targeting low income earners, the elderly and the disabled is unique. Most people have been left out by other sport centres because they have been unable to afford. Therefore, targeting the low income earners is a unique venture that is promising. Remarkable returns are expected because there is a potential of getting many clients. The venture is expected to command a large market because of low cost. As many clients make use of our sports centre, revenue will increase, an this trend is expected to last for a long period of time because no other sports centre is expected to differentiate its price by charging low prices. Investors are interested with the profitability and long term solvency of the business (Juan, 2007, P, 333). Therefore, a business should be able to generate income returns and maintain value growth, meaning that investors will always want to invest in profitable ventures. Also, the investment is expected to be immune to replication and will stay in the market long enough to make sufficient returns before competitors emerge. Given these facts, investors will be attracted to fund this venture because they are guaranteed of getting better returns on their investments. References Bhaird, C. M., 2010. Resourcing Small and Medium Sized Enterprises: A Financial Growth Life Cycle. London: Springer Press. Blumberg, M., & Hindi, H., 2013. Startup CEO: A Field Guide to Scaling Up Your Business. Hoboken: Wiley and Sons Press. Juan, D. A.-S., 2007. Fundamentals of Accounting: Basic Accounting Principles Simplified for. Bloomington: AuthorHouse Press. Muljadi, P., 2012. Entrepreneurship. Ann Arbor : Proquest LLC Press. Parker, S. C., 2009. The Economics of Entrepreneurship. Cambridge: Cambridge University Press. Reuvid, J., 2011. Start Up and Run Your Own Business: The Essential Guide to Planning Funding and growing Your New Entreprise. London: Kogan Page. Reuvid, J., 2006. The Handbook of Personal Wealth Management: How to Ensure Maximum Returns with Security. London : Kogan Page Press. Robin Lowe, S. M., 2007. Enterprise: Entrepreneurship and Innovation. Oxford: Butterworth-Heinemann Press. Root, H., & Koenig, S., 2006. The Small Business Start-Up Guide: A Surefire Blueprint to Successfully Launch Your Own Business. Naperville : Sourcebooks Press. Sherman, A. J., 2012. Raising Capital: Get the Money You Need to Grow Your Business. New York : American Management Association. Read More