Jafnee Jesmee The Compass at Hardley a.

i) Internal sources of finance refers to a method of raising finance for a businesses that is done solely within the business, these come form the business assets pr activities. An example of an internal source of finance would be sales of assets. ii) Paul and Lisa could make use of sales of their assets to raise finance. When a business sells its assets to raise finance it is usually, unused equipment and in this example the old game room is being refurbished therefore any equipment left over from the game room such as a pool table could be sold off. The advantage of this method is the business would not have to pay interest to raise the extra finance and selling unused assets may benefit the business by reducing storage space, though when selling the asset it is unlikely for the business to get the full price back. Paul and Lisa would also be able to take a bank loan to raise the $40,000 they require. In order to borrow money form the bank Paul and Lisa must provide evidence they will be able to pay the bank back by producing a cash flow forecast with how much the business is predicted to make over the course of a year or months. Though by borrowing money from the bank, Paul and Lisa will have to pay back an interest to the bank which increases overall expenses. b.i) fixed costs/(average income per meal variable cost of producing a meal) 1000 / 5 =200 200 customers are needed to break even ii) Net cash flow = [(income per meal variable cost per meal) x 300] 1000 =1500-1000 =500 c) The restaurant is just starting up and often business who are just starting up would want to know how many they would need to sell to break even. From the information gathered by Paul and Lisa about the fixed costs and variable costs and the selling price of each meal, they will be able to calculate how many they will need to sell to cover all of its costs. Having the break even information may allow the business to acquire a loan from a bank easier, in order to raise finance by $40,000. The break even chart is only as good as the accuracy of the data put into it. If the data is poor and inaccurate, the conclusion drawn on the basis of the data are flawed. For example, if fixed costs are underestimated, the level of output required to break even will be higher than suggested by the chart. It also assumes that all output is sold, so that output equals sales, and no stocks are held. The business is a restaurant and therefore will be handling perishable goods, ruined goods will not contribute the total revenue but will increase the total cost and this would offset the break even point. This business would be most likely selling a range of meals within a menu and it is likely that each product will have different variable costs and different prices. The problem for Paul and Lisa would be how to allocate the fixed costs of the multi product business to each individual product. Therefore if the fixed costs calculated for each product will be inaccurate and the break even analysis will be less useful.

Jafnee Jesmee