Macavoys - Sources of Finance

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Assume that the board decide to accept Angus’ proposal to expand the farm (line 67). Evaluate the sources of finance that McAvoys Ltd could use to fund the expansion. [14] If MacAvoys Ltd decides to expand their farming facilities and the farm itself then they will need some extra money to fund the upgrades required. This is where they must make a decision on the sources of finances that they must use. There are a variety of different sources of finance that they can use some with more benefits than others. The finance is needed to expand the business, to buy new equipment/vehicles/buildings, but stock, pay wages and emergencies.

There are two different types of sources of finance, one is internal and one is external. One internal source of finance would be retained profit which is the money that the company has made from selling its products in previous years. For the McAvoys they need a lot of money to expand their business and the profits alone that they made in previous years would not cover the costs. However they could be used to contribute of kept at the side for backup. This is the only internal source of finance that would benefit the company in a little way, even if it is not the best solution for them it can still help them.

The other alternative which is the most sensible for the company to choose would be external sources of finance. External sources can be short term which is finance that is under one year and is used for cash flow problems and purchasing stock for retail. This would not be right for the McAvoys which leaves the medium/long term sources of finance. One medium/long term source of finance would be a bank loan. This would be ideal for the company as banks offer loans specific to what type of business you are in. Also they have deals that mean the person getting the loan will not have to pay it back in a rush and allow them time to progress and expand before paying back the money.

Another medium/long term source of finance...
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