INTRODUCTION A business needs to be specific and clear over their approaches of managing the financial activities and making investment decisions in the operations. It would help them in maintaining the level of revenue resources present among them and overcome all the funds crisis situations (Broadbent and Cullen, 2012). Similar to this, the report is providing information about the business approaches and processes which are requisite for an entrepreneur to establish the manufacturing firm of tyres. For this, it is crucial that the person should be effective in managing, controlling, allocating and utilising financial resources in the business activities. TASK 1 LO: 1 1.1 It is an aim of every business to be effective and systematic in managing, controlling and utilising the financial resources in best form. But, in the starting stage of establishment a business needs to sum up high amount of capital to perform certain investments in the organisational activities (Conway, 2013). In that context, the owner needs to address the most beneficial and efficient financial sources which are able to acquire financial support:Internal sources: These sources are termed as the primary areas which are considered prior most for a person for generating funds for their business. It includes the options like personal contribution of the owner, taking borrowings from relatives, retained earnings, equity financing, etc. The stated business requires high amount of capital, hence the owner should opt for retained earnings and equity financing. External sources: The secondary areas from where the business could gain financial support for long or short term purpose (Rockey and Collins, 2010). The most common external source of finance are taking loans from the banks or other institution, leasing, debentures, mortgage, etc. Considering the business planning of the entrepreneur, he should acquire funds through mortgaging and bank loans. 1.2 The following are the implications related with all the kinds of selected sources for the planned business: 1
Bank Loans– ◦Legal Implications– It could lead to seizing of the assets in case of default rules and policies are used. ◦Financial Implications– The payment of amortization per month/quarter/ annual should be funded (Siano, Kitchen and Giovanna Confetto, 2010).Retained earnings– It is treated as arisk for entrepreneur to miss the business opportunities at the times when he is unable to collect required funds for new venture. The potentiality of the stated source is also limited up to certain extent (Trisha, 2016).Equity finance– The main implication of the specified source is to loose the control on the business operations and functions. Mortgaging– The bankruptcy is the major implication that could affect the entire operation of the gaining better financial value. 1.3 The planned business should select the following specified sources and consider the evaluation to determine their effectiveness for the planned business:Bank loans: The process of taking loans is quite long lasting and time consuming which generallyinvolvesmanytypesofverificationanddocumentationwhichcreates consequences for the owner (Epstein and Buhovac, 2014). But, the money gained by the source is highly crucial for the business in overcoming the organisational activities.Retainedearnings: It is stated as the best method of contributing personally in the business which includes less risk and overall expenditure. It would be beneficial for the owner to gain successful return from the cited source.Equity finance: To share the possession, control and powers with the shareholders allows the owner to divide the results, risk and impacts from the business which enables them to suffer less (Farmer and et.al., 2012). Mortgaging: This provides the entrepreneur high level of finance in return of transferring the possession of the property. It continues up to long time period usually for more than 20 years. 2
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