Starbucks is an international American chin of roastery reserves and coffeehouses. It is headquartered in Seattle, Washington, and has 30 thousand physical stores in eighty countries (Starbucks, 2022). The current chief executive officer of the company is Howard Schultz, and it was founded in 1971 by Jerry Baldwin, Gordon Bowker, and Zev Siegl. The entity deploys a retail corporation business type, and it is privately owned.
Business Case
The business case justifies the rationale for undertaking a program, project, or portfolio by evaluating available alternatives’ benefits, uncertainties, and costs. It provides several advantages to the company by helping the organization gain credibility, making real change management, and linking with project results (Starbucks, 2022). The Starbucks business case will determine the funding sources, the finance required for the firm, the prerequisites of individual monetary origins, the related risks, the best alternative financing option, and the estimated cost for both short-term and long-haul funding sources.
The Need for Funding
One of the rationales why Starbucks requires funding is to fulfill its working capital demands and sustain stable solvency and liquidity levels. In addition, since the company operates in many nations, it will need extra money for marketing and expansion (Starbucks, 2022). In the case of Starbucks, the entity needs funds to lease premises, renovate and improve retail coffee stores, acquire venture licenses, purchase raw materials, and recruit more workers.
Funding Sources
The type of venture impacts the kind of funding sources that are present to fund an idea. Since the company has revenue exceeding $21 billion, the business shareholders can self-fund the business by using the available savings without any loans. Starbucks can use borrowing as a funding source to acquire money for the business to buy more properties, obtain extra working capital, and acquire other firms. Starbucks shareholders would still have full ownership and control of the firm even though risks such as over-leveraging, lack of speculation, and collateral are available (Fan et al., 2019). Another funding source is equity financing by receiving cash from investors. Since Starbucks has significant growth potential, it can receive funding through venture capital. The chosen funding sources that have been determined to be the most appropriate include self-funding, equity financing, and borrowing.
Prerequisites for Individual Funding Sources
At first, equity financing mandates dividend payment to the investors and escalates shareholders’ value. In addition, borrowing as a funding source requires deciding on the total cash needed to complete the project, the available interest rate, and the alternative collateral to secure the loans. Another crucial requirement entails debt repayment after the maturity period and the health status of Starbucks to reimburse the capital (Fan et al., 2019). Since the owner of the business entity contributes the money, self-funding does not have any set prerequisite.
Associated Risk
Borrowing is extremely controlling for the business as the banks want to ensure they are repaid their interest rates and may impact the profit generation of an entity. On the other hand, self-funding has low uncertainties but makes the shareholder not invest in other activities (Fan et al., 2019). Equity financing ensures that firm owners render a part of the company to the investors, thus diluting their control, which can be against the established mission and vision statement.
Best Funding Sources
Some of the most suitable financing sources for Starbucks include self-funding and equity. Significantly, self-funding provides extensive autonomy to business owners, enabling them to make decisions that generate revenue and prevent losses or monetary burdens from loans (Fan et al., 2019). Since investors want to receive massive dividends from the company, they ensure they provide good decisions on how Starbucks can market coffee and reach several consumers.
Cost of Capital and APRs
At first, the cost of capital refers to the price of acquiring financing for a venture idea. The two-primary short-term monetary sources for the Starbucks company include self-funding. At the same time, the long-term financing sources include equity, which enables the firm to expand its business. The estimated cost of capital for both long-haul and short-term sources is $ 45000. The annual percentage rate (APR) for self-funding is 15%, and that of equity is 30%. The APRs will help Starbucks management know the interest rate and fees needed to obtain a loan.
Annual Percentage Rates
Profit and Loss Statement
Profit and Loss Account
The projected revenue for 2022 is expected to be slightly higher than $ 551220. For 2021, the growth rate was [11455-8408/11455] *100, which is 26.6%. In that case, one of the realistic assumptions is that in the projections is that the growth per year will continue to expand, particularly when Starbucks continues to reduce its total expenses and receive more funding (Starbucks, 2022). Starbucks estimated direct cost is $240 million; labor cost is $500 million; supply cost is $100 million; the capital cost is $250 million; and the marketing cost is $50 million. Starbucks must seek funding to ensure it expands its business across various countries.
References
Fan, H. L., Huang, M. H., & Chen, D. Z. (2019). Do funding sources matter?: The impact of university-industry collaboration funding sources on innovation performance of universities. Technology Analysis & Strategic Management, 31(11), 1368-1380.
Starbucks. (2022). Financial data. Web.