BUSI 435 Week 8 Discussion Board Forum 4 Replies Example

Discussion Board Forum 4 Replies: Cash Flow, Financing and Location

BUSI 435 Small Business Entrepreneurship, Discussion Board Forum 4 Replies

Thread by [Student Name]

The two classmates and their threads are composites; the textbook and the research cited are real, and the structure follows Liberty's public course guide for BUSI 435.

Reply to Kayla

Kayla, your plan to finance the smoothie bar by selling 40 percent of the company to an angel investor would solve the cash problem quickly, and your point that an experienced investor could also offer advice is a real advantage. I want to question whether equity fits this kind of business, though. Scarborough (2016) explains that angel investors typically look for businesses that can grow quickly and offer a large return when they are sold or expanded, and that equity financing means giving up a share of ownership, profits and often control permanently. A single smoothie bar may be a good business without being the kind of fast-growing venture an angel expects.

Data on new firms' real financing choices agree. Robb and Robinson (2014) found that new firms relied heavily on owners' money and on external debt such as bank loans, while outside equity played a much smaller role for most of them. For a business that will grow steadily rather than explosively, a loan the owner can repay is often cheaper than a partner who owns 40 percent forever.

An alternative might be a mix: your own savings, an SBA-backed loan for the equipment, which the equipment itself can secure, and perhaps a small amount from family on clear written terms. If you later open several locations, outside investors might then make sense. Keeping full ownership also keeps every future decision yours, which matters in a business you hope to run for many years. Has the investor told you what return they expect and over what period?

Reply to Ethan

Ethan, your choice of an edge-of-town building for the coffee shop because the rent is half that of downtown is understandable, and keeping fixed costs low is good advice in a business with thin margins. Scarborough (2016), however, lists the factors that matter most in choosing a retail location, including traffic patterns, visibility, accessibility, parking and the nearness of the business's target customers. For a coffee shop, which depends on frequent, quick visits, those factors often outweigh rent. A cheap location that customers pass only by car at forty miles an hour may cost more in lost sales than it saves.

Research on how people choose where to go supports paying attention to convenience. Heinen et al. (2010), reviewing studies of bicycle commuting, found that distance and convenience strongly shape travel choices, and the same logic applies to coffee: people stop where it is easy, on the way to somewhere else. A shop on a route people already travel on foot or by bike captures habitual visits that a destination location must work hard to earn.

Before signing, you could count morning traffic at both sites for a week, note how many people walk or bike past, and estimate how many daily customers each would need to cover its rent. If the downtown site's extra rent equals about forty drinks a day and it brings far more than that, the higher rent may be the better deal. Signage and parking also deserve a look, since a shop customers cannot see or easily stop at loses many of the impulse visits coffee depends on. Would the landlord allow a short lease or an option to renew so you could test the edge-of-town site first?

References

Heinen, E., van Wee, B., & Maat, K. (2010). Commuting by bicycle: An overview of the literature. Transport Reviews, 30(1), 59-96. https://doi.org/10.1080/01441640903187001

Robb, A. M., & Robinson, D. T. (2014). The capital structure decisions of new firms. The Review of Financial Studies, 27(1), 153-179. https://doi.org/10.1093/rfs/hhs072

Scarborough, N. M. (2016). Essentials of entrepreneurship and small business management (8th ed.). Pearson.