Managing financial resources and decisions
Added on 2020-01-15
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Managing financial resourcesand decisions
TABLE OF CONTENTSINTRODUCTION...........................................................................................................................3TASK 1 ...........................................................................................................................................3AC 1 Sources of finance available to a business ........................................................................3AC 1.2 Implications of the different sources of finance identified..............................................4AC 1.3 Appropriate sources of finance........................................................................................5AC 2.1 The costs of each of sources of finance...........................................................................6AC 2.3 Importance and process of the financial planning...........................................................6AC 2.3 Information required for internal and external decision maker.......................................8AC 2.4 Impact on financial statement..........................................................................................9AC 3.1 Budget...........................................................................................................................10AC 3.2 Pricing strategy of the per unit cost...............................................................................12AC 3.3 Investment appraisal techniques....................................................................................12TASK 2..........................................................................................................................................15AC 4.2 Financial statement of different type of company.........................................................16AC 4.3 Interpretation of financial statement..............................................................................16CONCLUSION..............................................................................................................................17REFERENCES..............................................................................................................................19
INTRODUCTIONManagement of finance are necessary for gaining long-term benefits. Management offinancial resources consists of techniques which help in making effective use of funds availableto business so that possible loss can be reduced. Use of finance in an optimum manner alongwith better management reduces the cost. In this report entrepreneur incorporate new business.Financial management helps the entrepreneur for taking effective decisions based on finance forhis newly established business. Thus, the present report includes detailed analysis of each sourceof finance along with some techniques which help to utilize finance in a better way. The bettermanagement of finance helps to entrepreneur for operate their business on large scale. Financialplanning are necessary in all sector because saving of finance can be utilization on anotheroperational activities of business.TASK 1 AC 1) Sources of finance available to a businessBank loan – It is the loan which is provided by bank on the basis of reputation or securedproperty of individuals. For loans, bank charges interest as per their current scheme.Generally, it is provided for long term purpose on which higher interest rate is charged.Their interest charge is as per the bank and client mutual agreement.Government scheme – Government provides loan on special scheme where it grants loanas per the requirement of individual on lower interest rate. This loan is provided for thepurpose of development of society. Personal saving- This amount is saved by entrepreneur himself to meet uncertainsituations which can occur in the future. Here, the entrepreneur is not required to pay anyinterest and thus, in case of loss arise in business; this type of loan would not be aliability towards him. Angel investor – This type of investor provides loan to entrepreneur on the basis ofentrepreneur’s idea. Generally, they invest on the basis of predictions that they can earnprofits on the invested amount. They see the idea and execution and make investmentaccordingly.
Policy – Entrepreneur can arrange loan on the basis of mortgage policy to any of thefinancial institutions or banks for specific time period. Thus, they charge interest on itaccordingly. Generally, short term loan is provided on this policy. Home equity – If entrepreneur has own house than he can arrange finance by givingownership document to financial institution or bank. It is an agreement where financialcenter provides secured loan to individuals on the basis of adding some terms andconditions. It is generally a long term loan on which interest is charged as per thespecified tenure. AC 1.2 Implications of different sources of finance identifiedSourcesLegal implicationsDilution of ownershipBankruptcyBank loanEntrepreneur needs tocomplete legalproceeding forgranting a loan. Thus,such proceeding mustbe in accordance withthe bank legal norm.Complete ownershipon the loan istransferred toentrepreneur at thetime of payment bybank. However, bankdemands interestamount on loan withinspecified time period.If entrepreneur wouldbecome insolvent or ifhe will not be able topay loan amount thenbank will use theirright as per the laws.Thus, it can sell secureproperty.Government schemeGovernment offersloan on the basis ofspecial scheme whichmust be followed bythe entrepreneur whois wants to grantingloan. Thus,government’s declaredspecial purpose mustEntrepreneur cannotuse the loan amount inhis own way becausegovernment can forfeitthe whole amount incase if it will not beused in accordancewith the government’sstated conditions.Government forfeitedwhole benefits whichare granted toentrepreneur at thetime of businessincorporation.
be fulfilled.Personal saving In this type of finance,legal proceedings arenot required. Entrepreneur can usethis type of loan in anyway.In case of bankruptcy,entrepreneur is notliable to pay therepayment. Angel investor Normallegalproceeding is requiredhere.Entrepreneur canutilize the amount inhis own way but heneeds to takesuggestions from angelinvestor for makinghuge investments.However, theseinvestors demandsome part of profit.In case of bankruptcy,angel investor cannotdemand their investedpart.Policy Entrepreneur has tocomplete the legalproceeding which isrelated to theprocedure of grantingloan through policy.This loan amount canbe utilized by theentrepreneur in anyway but he has to payinterest on suchamount.Failure of repaymentof the loan amountgives right to loanprovider to forfeit thepolicy amount.AC 1.3 Appropriate sources of financeChoosing of the suitable source of finance depends on the nature of business. Thus, itvaries on the need, usage of finance; purpose of using it, etc. Large firm has more options than asmaller firm to gain finance from different sources. Personal saving is a good way for collectingfinance because it does not require paying any interest. Apart from that, it does not raise anyliability on the entrepreneur in future. Even if in case business suffers from losses then this typeof loan does not raise any liability towards him. On the other hand, entrepreneur is not requiredto pay any extra cost on this loan amount.
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