Q.On the basis of the sources discussed in the chapter, suggest suitable options to solve the financial problem of the restaurant owner.

Solving the restaurant owner's problem means matching the specific financial need — whether it is short-term, medium-term or long-term in nature — to the source of finance best suited to it. …

First, classify the need: The right source depends on the purpose, time period, cost and risk. A restaurant's finance needs typically split into:

• Short-term / working-capital needs — buying groceries, provisions and daily supplies; paying wages, rent and utilities.
• Medium-term needs — replacing or adding kitchen equipment, refrigeration, furniture and interiors.
• Long-term needs — opening a new outlet, buying premises, or a major renovation.

Suitable options, matched to each need

• For short-term needs:
  • Trade credit — buy provisions and supplies from vendors on credit ("sundry creditors"), paying later; convenient, readily available and creates no charge on assets.
  • Bank credit — a cash credit or overdraft facility to smooth daily cash flow; timely, flexible and confidential.
• For medium-term needs:
  • Lease financing — rent costly kitchen or electronic equipment instead of buying it; needs lower initial investment, the lease rent is tax-deductible, and the risk of obsolescence stays with the lessor — ideal for equipment that dates quickly.
  • Bank term loan — a medium-term loan repayable in instalments for equipment or refurbishment.
• For long-term expansion:
  • Owner's funds / retained earnings — plough back profits or bring in more owner/partner capital first; no explicit cost and no loss of control.
  • Term loan from a bank or financial institution — for a new branch or premises, repayable in easy instalments. …