Sources of Finance for Entrepreneurs - Case Study Example

SOURCES OF FINANCE FOR ENTREPRENEURS Introduction Doug Perkins was born in Llanelli, but he has been in Ammanford, Australia for most of his lifetime. He met Mary (His wife) at Cardiff University as they studied optometry. The first optometry practice for the couple was opened in Bristol. From this first venture, the couple opened up a small chain and later came to sell the business for two million pounds and moved to Guernsey. Later, they got back to the same old business but this time with specsavers. Specsavers is an optometry business which was set up from scratch by Perkins (Otani 1996). It is involved with the sale of spectacles, hearing aids and contact lenses. The company has outlets in Finland, Denmark, Sweden, Norway Australia, Netherlands, and Ireland (Perkins, 1998). This paper is intended to focus on the sources of finance for this business. It will review the main sources of funds, the challenges faced in sourcing the finances and the management of the ever increasing financial needs. More over, it will address the contribution of relatives towards financing the business, if any, besides assessing the source of finance that is regarded as the best. Sources of finance The interview conducted with Doug Perkins was very informative about the sources of finance for his business venture. Initially, he worked with a boxing establishment which was among the smallest in his region. Later, he worked as an optometrist in the neighborhood. He also engaged in other tasks, including being a doorman for a cabaret club, and being a player in a local rugby club. From all these activities, Dough made savings, which formed part of his capital when he decided to start up the business. Although these savings did not provide a significant proportion towards capital, they were one of his sources of capital. As evidenced by the answers provided by Dough during the interview, the implementation of the idea was not an easy task. He admits that several challenges hindered this activity. The major obstacle was the issue of finance. This clearly comes out where Perkins says “Banks, which were the major source of finance hardly believed in the success of our business” This challenge made Perkins to think of jointly owning the company, (Partnership) and this is what led to the joint –management of the venture with a fifty percent holding by Perkins, and the other fifty percent ownership going to the local opticians. This did allow the general financing that was necessary to end up being divided between those two parties. As a result, the company has grown to be the largest in the United Kingdom. Though it was initially an obstacle, this partnership made the company to finally open up outlets in other countries, such as Finland, Australia and Netherlands. Doug Perkins, in the interview, elaborates how the company re- invests within the business .This generates the required fund for training its personnel, in a bid to improve their expertise (Doug 2011). Also, these finances are used to meet the needs of the stakeholders, besides offering support to the company. It is clear that a significant amount of this fund is devoted towards motivating the people affiliated to the company. This is because employees are recognized as a useful and valuable asset of the company. This source of finance also helps to fund the communication system that ensures an efficient relay of contributions from every party. These are the several uses of the finance generated from the company in the form of profits or returns which accrue from the investment made in the company. Dough says “The public markets were also a source of finance for business start ups. However, the aspect of risk management is very critical. Additionally, it is very common for collateral to be a requirement prior to approval of this funding application” This statement implies that he did not seek this source of finance in his business venture, mainly because of the technicalities involved. Challenges and difficulties Doug says, “Risk management is key in determination of the extent to which the business is going to remain sustainable. Efficient management of risks is very important.” Furthermore, he talks about the existence of stringent regulations by the Government, which adversely impacted on the business venture. Dough had to consider these regulations, together with their changes. This posed a major challenge in the running and operation of his business venture. According to Porter, (1998) all managers from all business sectors/ fields should establish a strategic plan that is intended to minimize the risks to which the business is exposed. This aspect is also one of the major determinants of the sustainability of the business (Bennett 2010).For Dough, there are special mechanisms put in place to manage the risks, and thereby minimize the challenges facing the business. Of more importance are the preparations that have been put in place to ensure that any adverse occurrences are solved as quickly as possible. Another serious challenge faced is the competition from other opticians in the region. To manage this, Dough says “Our main objective is to dominate the market, or in other words, to become the market leader. To achieve this, we focus ourselves in offering services that satisfy the customer needs.” Customer happiness is the driving motive which makes them to make a re-purchase from their sellers (Kotler 2007). Monitoring and management The management of Spec savers business venture is bestowed on two parties. These are Dough, and the local opticians, who are entitled to 50% share of control each. Measures have been put in pace to ensure that the business runs smoothly without much of supervision and monitoring. However, a substantial amount of the business finances is used to establish and maintain very reliable communication systems among all the participants, employees and the staff. Moreover, some of the fund is used to offer support to all the activities that are performed within the company. Conclusion Various characteristics of Dough were identified during the interview, most of which portray him as an entrepreneur. The fact that he was able to discover a viable business opportunity and seize it qualifies him as an entrepreneur. Successful entrepreneurs are risk takers (Autio 2005). Dough had the courage to venture in a business whose fate was unknown. Thus he may be described as a risk taker. Besides, he deals with his business partners in an honest manner, while maintaining integrity with each of them. During the interview, he talks about risk management, and therefore he may be regarded as somebody with the ability to calculate risks. Perkins confidently tells of his vision for Specsavers, and commits himself to quality service delivery. This means that he is a responsible person, whose aim is to make the business venture to prosper. Again, despite the challenges faced, he maintained a positive attitude which also contributed towards success of his business start up. References Autio, E., Ho, P. and Wong, K. 'Entrepreneurship, innovation and economic growth: Evidence from GEM data'. Small Business Economics 24(2005), 335-350. Bangs, Jr. The business planning guide: Creating a plan for success in your own business. (Chicago: Upstart Publishing, 1998), 109-21. Brenner, G., Ewan, J., & Custer, H. The complete handbook for the entrepreneur. (Englewood Cliffs, NJ: Prentice Hall, 1990), 45-48. Buera, F. A Dynamic Model of Entrepreneurship with Borrowing Constraints. (Mimeo: Chicago University, 2003), 65-76. De Meza, D. and Southey, C. 'The borrower's curse: Optimism, finance and entrepreneurship'. Economic Journal 106 (1996), 375-386. John, Conrad. Doug Perkins, a Success Story. New York Business Review, 2(1998), 13-18. Kirzner, I., 'Entrepreneurial discovery and the competitive market process: An austrian approach'. Journal of Economic Literature 35 (1997), 60-85. Knight, F. 'Profit and entrepreneurial functions'. The Journal of Economic History 2 (1942), 126- 132. Lazear, E, 'Balanced skills and entrepreneurship'. American Economic Review 94 (2004), 208- 211. Otani, K. 'A human capital approach to entrepreneurship'. Economica 63 (1996), 273 -289. William, Stolze, Start Up Financing: An Entrepreneur's Guide to Financing New or Growing Business. (NJ: Career Press, 1997), 128-37. Appendix Doug: hello, yes. Welcome, how are you? Ging: Ok. Thank you, how are you sir Doug: OK. Ging: we are studying management and some of us doing majors in management economics, finance management….we will be asking a couple of questions in terms of finance sourcing… Ging: Hi Doug. What is the idea behind specsavers, what made you really come up with the idea? Doug: well. It is the way that I have always conducted business over 14 years and specsavers has been going for 25 of those years but the specsavers concept was just an extension of when I actually run my own business and so the reason it worked so well is that our partnership franchise has been on the other end for over 15 years when I actually had my own business and so I knew exactly what I require in those 15years. The concept was based on…aah…. my wife is an optometrist like myself. We both actually are university trained in our field so we can’t claim that we are people that are entrepreneurial in every field although I have…so I guess I should and I wanted to jump into other areas and so the concept is about value for money and over a period of 14 years which we have always believed in and so customers service that can be delivered by an ownership structure I franchise and belief in values and strategy and we’ve gone pretty well have no mercy with anybody who doesn’t demonstrate our values so we come down like turn on brakes on anything like that so we are proactively manage the energy that is right through the selection of our partners so it is not an investment franchise we are very much on bold and on running ourselves so it is an evolution from the early days of that period from 1965 to 1982 when we run our own business then after two years which was mainly research then we started the specsavers system which was designed to be, then putting ourselves on complete retail support package for the partners of which we’ve got now well over 2000 Ging: what are toughest decisions that you have been forced to make as a financial director of your company? Doug: well, the toughest decision was in the early days as I thought I had build up financial reserves in the first 15 years but when we started specavers it was a different model as we totally believed in the franchise system but in other times until the early 80’s no bank was actually believing that a start-up franchise had much of a chance of success as it was difficult to demonstrate a huge flow of profits or what the banks reoffered as profits as we only taking a small percentage of the total turnover and obviously..they did not see if we had the right profits and so the concept was believed in as that was the only way to succeed and you couldn’t really run a system where you are running the stores yourself and to be running a franchise and so those were heady days where the bankers that were helping us on the journey were caught a bit twitchy and had to believe in a model that was basically for the added value for the customer than any other form of business so you have to be able to manage risks much more efficiently so that in the long run it is much more sustainable going forward. If you’ve got a company setup which is so high on services we are, it’s only a matter of time before the thing ones to a halt. Ging: “What are your main sources of funds for your business?” Doug: “Well, when I thought of establishing this business, I did not anticipate the capital from any financiers. During then, Banks which were the major source of finance could hardly believe in the success of our business. The few that were convinced that the business would be a going concern, with earnings sufficient to repay their dues, would require collaterals to be surrendered as a form of security. Also, public markets would be another option. However, these are usually associated with lots of technicalities and so I found them unreliable. Before starting Specsavers business, I had worked for quite some years in a boxing early that was amongst the smallest in my home town. I also worked as an optometrist in one of the neighboring optometry. One of the things that I made sure that I maintained in the setup of the business was use of my own funds, I did not outsource for funds from any other business” Ging: “What financial challenges do you face when accessing funds to run your business?” Doug: “Starting the business was not a simple task. I had to operate within very stringent Government controls and regulations. When the government allowed citizens to venture into these businesses, I seized the opportunity right away. Any business will always be subjected to some level of risk, you know? For Specsavers, re-investing within the company requires significant returns to be generated” Ging: “Considering that this organization is expanding, how then can you deal with the increasing financial needs?” Doug: “We have got a vision for our company. In order for any business to realize a success, it is pretty important to be having a robust plan which is the driver and the vision intended for your company. At Specsavers, we intend to become the market leader and dominate in the region. One of the major aims is definitely to present affordable products, and superior services that satisfy the clients. As such, we shall once achieve our goal, and definitely with the re-investments that we make within the company, we will have no problem with finances.” Ging: “Do you expect any financial support from friends or relatives to support your business?” Doug: “We jointly own the business with some practicing optometrists. Their support towards the company can not be overemphasized.” Ging: “Of all your different sources of finances, which among them do you consider as the most suitable and what are the reasons for?” Doug: “We want to dominate and be the market leader in the World. At the present, we do operate in the UK and the Ireland, among a host of other countries. The current financing has enabled us to significantly grow our market share. This started from one store. I entered into partnership, and their support really boosted the business.” Read More