Financial Task: Ways to Financing the Expansion Plan

Introduction

Pirie Street in Adelaide CBD has proved to be fruitful and has experienced a steady increase in demand for various products. Most of the business is now thriving as a result of a good working environment and a business-friendly condition where profit can be generated. Working as a financial advisor, Gary Green should not fear to take the $ 700,000 loan since it not only the company that has proved to pay its loan by the environment is very conducive to facilitate loan repayment.

Is your time best spent reading someone else’s essay? Get a 100% original essay FROM A CERTIFIED WRITER!

Order now

Vision Offices Company owned by Gary has good financial health as reported on the balance sheet and income statements for the past three years it has been operating. The current demand for co-shared working offices in Adelaide has presented an excellent opportunity for exploitation in the real-estate business. The expansion plans require a critical analysis of the financing options available for the company. The financial position for the Vision Offices requires alternative financing to raise the $700,000 needed to acquire the next-door office for expansion. The primary source of financing the project is bootstrapping especially from the profit posted by the business. The company has an impressive net profit margin, and the trend shows that it is increasing annually (Cavusgil, Knight, Riesenberger, Rammal and Rose, 2014).The net profit reported for the 2017 financial year ($108,794) is good enough for the company and therefore Gary can reduce some of the dividends remitted to the shareholders and invest in the expansion plan.

Business expansion requires diverse sources of financing both from the owner and loans from commercial banks. Currently, Gary's company is servicing Mortgage of $300,000 from Westpac and therefore he can use the already established contact and request for a top-up of a fraction the $700,000 and thereafter approach Commonwealth Bank of Australia for a 10-year Mortgage for the remaining amount (Valadkhani and Anwar, 2012).The income statement shows that Vision Offices' propensity to pay is impressive and therefore presents an adequate justification for a loan from the Commonwealth Bank.

Another alternative way of financing the expansion plan is the diversification of the bank loans from three different banks with the surety of the company's assets as security for the credits, and also Gary can sell some of the shares of the company to bring another director on board. The current company position and the market trends provide high confidence in the performance of the Vision Offices. A projection of the company's net profit and the target market for the next five years can be used to enhance confidence for the financiers (Casson, 2013).

The loan of $ 700,000 will finance the expansion and Grays company asset and the current liability has proof it right that the company has a great chance of funding their own investment in the long run.It is important to note that through the SBA loans, prime borrowers look for the lowest interest rate and most extended repayment term in servicing their loans (Elliehausen and Hannon,2018). Gary should work on adopting such loans to manage the financial capacity of the business.

Conclusion

Based on the balance sheets and the income statement of the Vision Offices, it evident that real estate business and offering Co-working shared office is a good business that has great potential when it comes to growth and general expansion in Pirie Street in Adelaide CBD. Focusing at the working capital ratio of 6.1:1 in the year 2017 and 1.5:1 in the period 2017, the working capital is on the increase which is a clear sign that the market is growing at a faster rate. An excellent moving balance sheet and an efficiently working income statement predict the future and performance of a business (Kgoroeadira, Burke and van Stel,2018). Additionally, it is abundantly clear that the net profit margin that has been recorded in the recent past is on the increase with the company recording 61.5% margin profit in 2017 improving 11. 5% from what was obtained in 2016 which was 50%. This is a clear sign that the region is conducive for business growth.

Bibliography

Casson, M., 2013. The Growth of International Business (RLE International Business). Routledge.

Cavusgil, S.T., Knight, G., Riesenberger, J.R., Rammal, H.G. and Rose, E.L., 2014. International business. Pearson Australia.

Elliehausen, G. and Hannon, S.M., 2018. The Credit Card Act and consumer finance company lending. Journal of Financial Intermediation, 34, pp.109-119.

Kgoroeadira, R., Burke, A. and van Stel, A., 2018. Small business online loan crowdfunding: who gets funded and what determines the rate of interest?. Small Business Economics, pp.1-21.

Valadkhani, A. and Anwar, S., 2012. Interest Rate PassThrough and the Asymmetric Relationship between the Cash Rate and the Mortgage Rate. Economic Record, 88(282), pp.341-350.