The Relative Arguments for a Firm Choosing Between Internal and External Sources of Long-Term Finance
It is ideal to evaluate each source of capital before opting for it. Sources of capital are the most explorable area especially for the entrepreneurs who are about to start a new business. It is perhaps the toughest part of all the efforts. There are various capital sources, we can classify on the basis of different parameters.
Franchisors include Budget Rent-a-Car, Wimpy, Nando's Chicken and Chicken Inn. Under a franchising arrangement, a franchisee pays a franchisor for the right to operate a local business, under the franchisor's trade name. The franchisor must bear certain costs (possibly for architect's work, establishment costs, legal costs, marketing costs and the cost of other support services) and will charge the franchisee an initial franchise fee to cover set-up costs, relying on the subsequent regular payments by the franchisee for an operating profit. These regular payments will usually be a percentage of the franchisee's turnover. Although the franchisor will probably pay a large part of the initial investment cost of a franchisee's outlet, the franchisee will be expected to contribute a share of the investment himself. The franchisor may well help the franchisee to obtain loan capital to provide his-share of the investment cost.
You can also set aside your internal financial resources for cash payments to vendors, which can help improve your company's credit rating.
Heitor Almeida and Murillo Campello
The Journal of Financial and Quantitative Analysis
Vol. 45, No. 3 (JUNE 2010), pp. 589-622