Capital Needs and Funding in the Retail Industry

Posted on April 14, 2022 by Cheapest Assignment

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Different retail industrial units or sectors have diverse entities and components as a part of them. In this manner, their strategic, operational, and financial needs also vary as per the characteristics and targets. While some firms get access to the required monetary amount for their needs from appropriate sources, others fail to achieve this. Furthermore, the funding pathways also differ from one firm to the other. Therefore, these aspects should be thoroughly assessed by a retail venture to gain success. The current paper will discuss the above-mentioned issues in a concise and precise manner so that one can develop a proper understanding of how financing and funding in retail works.

The Capital Needs of the Firms

The retail industry firms exclusively need appropriate access to the required capital. The aspect of capital helps in fulfilling the transient money-related necessities of a business venture. In the context of the retail industry, this should be considered as the capital that is occupied with the tasks of the business for a certain period or a long-term objective. All the associations regardless of whether they are related to making extensive profits or not require the capital for the everyday activities of the business (Li et al. 2014, p.5). The retail firm directors while settling on speculation choices not just plans for the long haul, for example, purchasing fresh buildings or machines yet, addition, should consider the requirement for having extra resources for the organizations for an extension of action targeted by the company (Li et al. 2014, p.7). For instance, on the off chance that a firm is intending to enhance the standard of generation, the authoritative entities need to hold a more prominent standard of crude materials. Comparably, if the associations expand the deals, one can easily identify an expansion in the standard of indebted individuals. Each of the outlined venture choices for the capital needs can convey the association to the standard of the potential hazards. Therefore, this would be exceptionally fundamental for a retail industry firm to get access to the capital and to deal with this in a viable manner to dodge the organization-related risks.

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Appropriate Sources of Funds Available to the New Ventures

Whereas the established firms can have an upper hand in getting access to the required funds from various sources, the new ventures might face a difficult time in arranging the capital. This happens because the already existing companies have already proved their worth and value through performance whereas the new ventures need to prove themselves. However, a new venture can get access to the funds from several appropriate sources by convincing the funding entities. The external sources of funds are loan capital and share capital from external investors. The loan capital might be used in the form of a bank loan or bank overdraft. Whereas a bank loan is usually utilized as a long-term source of finance, a bank overdraft is a short-term source of finance (Rossi 2014, p.11). The utilization of bank loans can be witnessed widely among retail business firms because the money is borrowed for a particular period at acceptable rates of interest (Deakins and Freel 2012, p.113). On the other hand, the business entities can make use of share capital for a small period but they have to pay the high rates of interest (Bathala, Bowlin and Dukes 2004, p.36). Both of the sources are widely accessed by retail business firms. Furthermore, the entrepreneurs might also approach the business angels who are the popular source of financing and funding. On the off chance that the business angels are convinced with the potential prospect of the business and visualize the growth, they will invest in that business. These outside investors can also help the business in several other ways such as availing their business contacts, hiring experienced professionals, and utilizing their expertise so that the small business has a competitive advantage over other firms (Calopa, Horvat, and Lalic 2014, 27). A small business firm can also approach venture capitalists. However, it is unlikely that a venture capitalist will be interested in investing in a small business as they tend to invest a minimum sum of 1 million euros (Rossi 2014, p.12). But if the founder becomes successful in convincing these investors, the business will probably not have any financial problems.

The Funding Pathways used by Firms

The funding pathways differ from one firm to the other. Whereas the traditional pathway to get the funding is to approach the investors or acquire loans in an offline or simple online manner, there is an increasing tendency among the new ventures to use crowd-sourcing as a potential resource. In this regard, one should remember that the determination of the funding pathways exclusively depends on the needs of the firms, the accessibility to the sources, and the firm’s efficiency to capitalize on funding opportunities. Whatever it may be, the approach to venture capitalists or angel investors seems to be a prominent pathway for funding.

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Conclusion and Recommendation

The need for capital is extensive and quite significant in the retail industry. The firms need to arrange the capital as per their needs and accessibility. One can find out different internal and external sources of funding to support the new ventures. However, these sources should be properly assessed and approached as per the firm-specific requirements. Similarly, the firms need to also determine the funding pathway in light of their objectives and their efficiency in accessing the sources of funding. Therefore, the retail firms should thoroughly evaluate their required budget, develop a strong financial plan, comprehend the available sources of funding, determine the properly accessible source, and design the proper pathway so that their strategies can impress the investors and make them provide financial help to start the venture and gain the achievable success.

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Bathala, C.T.,  Bowlin, O. D., and Dukes, W. P. (2004) “Sources of Capital and Debt Structure in Small Firms”.  Journal of Entrepreneurial Finance and Business Ventures, vol.9, no.1, pp.29-50.

Calopa, M.K., Horvat, J., and Lalic, M. (2014) “Analysis of financing sources for start-up companies”. Management, vol.19,no.2, pp.19-44.

Deakins, D., and Freel, M. S. (2012) Entrepreneurship and small firms. London: McGraw-Hill Higher Education.

Li, C., Dong, H., Chen, S. and Yang, Y. (2014). Working Capital Management, Corporate Performance, and Strategic Choices of the Wholesale and Retail Industry in China. The Scientific World Journal, 2014(1), pp.1-15.

Rossi, M. (2014) “The New Ways to Raise Capital: An Exploratory Study of Crowdfunding”. International Journal of Financial Research, vol.5, no.2, pp.8-18.

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