logo

Managing Financial Resources & Decisions : Doc

   

Added on  2019-12-18

16 Pages4646 Words158 Views
Managing Financial Resources & Decisions

INTRODUCTIONManaging financial resources, includes the management to finance in the business or from whichsources finance should be take so that it will financial for the organization. First thing an entrepreneur needin the business is finance. An enterprise need a secure or adequate fund to start a business. In this case anentrepreneur is thinking to establish a new business of home textile products. For the purpose of establishingthe business he will evaluate the market condition, financial sources available for business.TASK 1LO 11.1 Various sources of finance available for businessFor starting or setting up the business an entrepreneur needs fund to start that business and formeeting us the daily operations of a business. Finance is the major part of the business but selecting theappropriate one is the main thing (Böhm, Eggert and Thiesbrummel, 2017). There are two sources from whichan entrepreneur can take finance they are internal sources of finances or external sources of finance.Internal source of finance means entrepreneur personal finance that he is willing to invest in the business. ItincludesPersonal saving-An entrepreneur can invest his personal savings in order to start the new business.This in turn recognized as cheap source of finance because there is no obligation to pay back funfs.Borrowing from friends-Friend and family who are supportive can provide finance to theentrepreneur for setting up the new business. Such source of finance offers flexibility of re paymentand interest as compared to other alternatives available.Credit card-This is the popular way of financing to start a new business. Working of credit cards belike this, each month entrepreneur pay for expenses related to business on credit card. After 15 dayscredit card statement is sent and the balance is paid by the business within credit free period (Cardin,Jiang and Lim,2017). Effect to this business get access of free credit for 30-45 days.External source of finance means taking finance from outside institutions. It includes the loan, leasing, or byissuing the shares. Etc.Loan capital- An entrepreneur can start venture by taking loan from financial institutions. Thus,business entity can easily take loan on the behalf of collateral security and thereby would becomeable to meet financial requirements. Lease-Lease is the agreement between two persons where one party grant the right to use the assetsor services to other party for certain period. In other words, by taking fixed assets on lease businessunit can fulfil funding requirements significantly. Hence, in such case, firm only needs to pay rent inagainst to using assets. Loan from government- Sometimes many incentives or loans are given by government in order tohelp the businessman in starting new business or expanding the existing business.In order to set up the business of home textile product. Entrepreneurhas to make arrangement of finance through the internal or external sources. In this entrepreneur has only£20,000 as an internal source of finance and entrepreneurs wants £250,000 in order to set up the business. So

for the remaining fund he will go for the external sources of finance. Entrepreneur will either go for bankloan, or will take finance on lease or will take from government. 1.2 Implication of different sources of financeSourcesLegalFinancialDilution of controlBankruptcy 1. Personal savingNo implicationNo implicationNo implicationNo implication2.Bank loanDocuments are to besubmitted as asecurity againstloan.Interest will be asper the loan.Priority will begiven.3.Share capital4.LeaseAgreement will bemade.Financialimplication will beas per theagreement.Priority will begiven.1.3 Appropriate sources of finance for starting a businessFor starting a business of home textile product's entrepreneur will compare all the sources of financeand will choose the best source of finance. As entrepreneur will firstly opt for the internal sources of financebut the entrepreneur has only £20,000 as an internal source of finance and rest of will be taken from externalsource of finance that is £230,000. Entrepreneur will compare all the options on the bases of their legalityand financial implication.In case of loan there is obligation of interest at the end of every month. Entrepreneur has to payinterest at the end of every month but this is the easiest way to take finance and interest rate is alsominimum(Gianni, Gotzamani and Vouzas,2017). Lease will be depend upon the parties as what they havedecided in respect of interest or amount.Borrowing from government is also the best way. As sometimes government offers incentive plan orlower interest rates to the entrepreneur.For setting up the business £230,000 will be taken from government institution as government isgiving various incentives plan for setting up the new business. And interest rates are also low as comparedto other.LO 22.1 Cost of financing resourcesLoan capital- In case of borrowing from the bank, entrepreneur has to pay interest on the loan to thebank. Interest rate of loan varies from bank to bank. Generally interest rates on loan are between 10-15%. Interest on loan is paid monthly to the bankers.

Lease- Lease is depend upon the agreement made between the parties. In this case leasee has to payrent to lessor (Grabher and König,2017) Rent is determined by the lessor on the bases of the time oflease.Loan from government-Cost of taking borrowing from government is low. in these loan rates are lowas compared to other institutions. Sometimes in order to promote the businessman government maygive incentives. Entrepreneur again has to pay to interest on loan. But the rates may differ.Venture capital-Cost of hiring the venture capital is high as they take at least 40% venture in clientfirm.2.2 Importance of financial planningFinancial planning is the process of estimating the capital requirement of business. It relates to theprocess of framing financial policies, investment and administration of funds of the enterprises. With thehelp of financial policies' entrepreneur can make effective and adequate financial policies which will givepositive return to the business (Hisrich and Ramadani,2017). Importance of financial planning are:Financial planning helps entrepreneur in getting adequate funds for setting up the business, andensure the consistency of goals by coordinating the objective of business with the financialrequirement.With the help of proper financial planning proper utilization of fund can be done.An entrepreneur can anticipate the future requirement.Financial planning helps to reduce the uncertainties which can be obstacle to the growth of business.This helps in ensuring stability and profitability.Financial planning helps the entrepreneur in making right decision.It ensures the balance between the outflow and inflow of the business.It also supports the strategic growth of the organization, by evaluating the risk, estimates andopportunities in the market.All these importance’s of financial planning helps an entrepreneur in setting the business (Karakayaand Karakaya, 2017). As with the help of this entrepreneur can anticipate the demand of home textile productsin the market. And accordingly entrepreneur will invest in the business.2.3 Users of financial informationFinancial information is useful for the person who wants to invest in the business. Various users offinancial information are internal users and external users.Internal users are those users which are within the organization. It includesManagement- Management of the organization need financial information in order to know thefinancial position of the organization and accordingly strategies will be planes.Employees- Employees analysis the company profitability in order to expect the increment in theresalarie4s in future.Owners- Owners are the person who run the business, they want financial information to check outthe growth and position of their organization.External users are those users which are the outside the organization. They are

End of preview

Want to access all the pages? Upload your documents or become a member.

Related Documents
Income Generation Opportunity - PDF
|21
|4768
|51

(Doc) Management of Financial Resources
|15
|4223
|42

International Financial Reporting Standards | IFRS
|11
|2767
|24

Accounting and Finance for Start-up and Ongoing Business Expansion
|22
|4770
|409

Survey of Clariton Antique Ltd
|17
|4560
|172

Identifying Sources of Finance Available to Business
|13
|2964
|49