On the basis of the sources discussed in the chapter, suggest suitable options to solve the financial problem of the restaurant owner.
Mr. Anil Singh can consider the following suitable options to solve his financial problem for expanding his restaurant business:
Partnership is one option suggested by his father. He can enter into a partnership with another restaurant owner who would bring additional funds. However, this would require sharing of profits and control of the business with the new partner.
Bank Loan is another option he is already considering. For proprietary concerns, borrowings from banks are a common source of raising funds. This would allow him to retain full control while meeting his expansion requirements.
Converting to Company Form would enable him to issue shares and debentures, as suggested by his friend Ramesh. However, shares and debentures are available only to a company form of organisation, so he would need to convert his business structure first.
Personal Sources and Borrowings from Friends can also be explored, as these are traditional sources available to proprietary concerns.
The final choice should be based on factors like the purpose and period for which funds are required. Since he needs funds for expansion (long-term purpose), he should evaluate the merits and limitations of each source before deciding.
Explanation
The question asks students to apply their knowledge of sources of finance to a practical case study. Mr. Singh currently operates as a sole proprietor (evident from 'personal sources'). The textbook context clearly states that for proprietary concerns, funds can be raised from 'personal sources or borrowings from banks, friends etc.' For accessing shares and debentures, he must convert to a company form. The answer should demonstrate understanding that different business structures have access to different financing options, and the choice depends on factors like purpose and time period of fund requirement.
Solution Steps
Step 1: Identify the current business structure (sole proprietorship) and its financing limitations.
Step 2: List available sources for proprietary concerns - personal sources, bank loans, borrowings from friends.
Step 3: Explain partnership option - brings funds but requires sharing profits and control.
Step 4: Explain company form conversion - enables shares/debentures but changes business structure.
Step 5: Conclude by mentioning that choice depends on purpose and period of fund requirement.