Managing Financial Resources and Decisions Task 1. Managing Financial resources and decisions Task 1. Managing Financial resources and decisions

Managing Financial resources and
decisions

Table of Contents
Task 1..............................................................................................................................................3
1.1 Financial sources.......................................................................................................................3
1.2 Implications of financial sources...............................................................................................3
2.1 Analyse the costs of the two sources of finance under consideration........................................4
2.2 The importance of financial planning for Osborne Terrace restaurant......................................5
2.3 Assessment of the information that will be needed to make decision on financing the takeover
by......................................................................................................................................6
2.4 Impact of finance on financial statements if Osborne Terrace restaurant.................................6
3.1 Analyses of the cash budget for Osborne Terrace restaurant....................................................7
3.2 How unit costs will be calculated to make pricing decisions....................................................7
3.3 Investment appraisal techniques................................................................................................8
TASK 2..........................................................................................................................................10
4.1 Discuss the key components of financial statements...............................................................10
4.2 Comparing the format used by Osborne Terrace restaurant to presenting their financial statement with that of a
partnership...............................................................................................11
4.3 Interpreting the current money related statement of Osborne Terrace restaurant utilizing proper proportions and making
examination with the earlier year................................................12
REFERENCE.................................................................................................................................14

TASK 1
1.1 Financial sources
For government contract as establishing new branch of Osborne restaurant, accountant of the organization is looking for
financial sources. Some of the sources can be expressed as follows:-
Internal Source
Personal savings:- By using personal savings, entrepreneur can establish new entity named as Osborne Terrace restaurant
(Albelda, 2011). In addition to this, he can also take aid from his friends and family members by which effective fund can be
allocated for commencement.
External Sources Bank loan:- Bank advance gives a long haul sort of reserve for a start-up, with the bank communicating the settled period over
which the loan is given (e.g. 6 years), the rate of interest, and the arranging and measure of repayments. The bank will
generally speaking requires that the start-up give some security to the advance, despite the way that this security normally
comes as individual affirmations gave by the business visionary. Bank loans are valuable for financing interest for settled
assets and are generally at a lower rate of premium that a bank overdraft. In any case, they don't give much flexibility (Bowen
and Rajgopal, 2010). Thus, adequate fund can be allocated by taking loan from bank to setting up new branch of Osborne
restaurant.
 Bank overdraft:- This is a fleeting kind of reserve which is comprehensively used by new organizations and autonomous
organizations. An overdraft is really a loan office, the bank allows the business "to owe it money" when the bank adjust goes
underneath zero, as a final product of charging a high rate of premium. Consequently, an overdraft is a versatile source of
back, as in it is quite recently used when required (Ehrhardt, 2016). Bank overdrafts are unfathomable for helping a business

handle general instabilities in pay or when the business continues running into at this very moment income issues (e.g. an
imperative customer fails to income on time).
1.2 Implications of financial sources
It is needed to recognize all financial sources critically, therefore appropriate selection of source can be done. However, some
implications are identified for getting financial sources as:-
Financial
sources
Financial
implications
Legal
implications
Bankruptcy Dilution of
control
Loan from bank Paying interest on
loan and also
impacts financial
performance of
organization
So many legal
formalities to
granting loan
In case of
bankruptcy,
creditor, debtors
and suppliers
impact get
affected
No dilution of
control
Share capital Same as loan
from bank
Same as bank
loan
Same as of taking
loan from bank
Control can be
diluted.
Personal saving Affects further
operations
No legal
implications
No bankruptcy Same as for loan
from bank.
1.3 The most appropriate sources of finance for Osborne Terrace restaurant plc
Decision maker of Osborne Terrace restaurant may consider the going with source of capital that is in regards to ideal for
business establishment as:-

Working with Investors:- Contingent upon the traverse of the business and the degree of the improvement plans, the
organization may look out subsidizing financing, or work with a private budgetary speculators to back the expansion. Examiners can
be exceptionally significant to creating private endeavors, since they offer bits of information and experience about developing the
business that the organization would not have in solitude (Floyd, 2005). Regardless, working with budgetary financial specialists
implies surrendering an incentive in the business, and the theorist may request strategies for doing things that don't organize the
arrangements.
Advantages:
 Imposes less monetary burden as there is no fund which needs to be repaid over the time frame Cheaper and effectual source of finance
Disadvantages:
 In this, firm has to involve shareholders in decision making which in turn creates issue
 Time-intensive exercise
Debt Based Financing:- Many business people will bolster their advancement plans through an autonomous venture loan
either from a standard bank or from an option moneylender. The decisions for obligation based expansion financing are as
inconceivable as for some different business needs (Burritt and Schaltegger, 2010).
Advantages:
 Offers deduction in tax brackets and thereby enhance profitability It helps in avoiding lenders involvement in the decision making aspect
Disadvantages:

 Fixed payment in terms of installments and interest amount imposes burden in font of company
 Includes several documentary formalities.
Above mentioned, both of two tools as working with investors as shareholders and debt financing are appropriate options for
establishing Osborne restaurant's new entity. It will be suitable for effective expansion and enhancing efficiencies of organization
adequately.
2.1 Analyse the costs of the two sources of finance under consideration
There are different kinds of sources by which decision maker can allocate fund including loan from bank, venture capitalist,
share capital, personal saving and so on. Therefore, it is needed to analyze all sources critically as well making decisions for
establishment of Osborne Terrace restaurant. For share capital, it is required to looking for dividend and potential to start up new
entity. However, its impact on financial position of organization can be recognized through this system (Christ and Burritt, 2013).
Including this, for taking loan from financial institutions like bank, it is needed to look at interest rates and entity's potential to refund
amount. Therefore, cost analyses is created for making decision regarding allocating fund for establishment effectively. From
assessment, it has identified that selected sources of finance impose following cost in front of the business unit: Equity shares: In the case of equity shares, business unit needs to offer dividend to the shareholders in the form of return
whenever it generates enough profit. In this way, such source of finance imposes monetary cost in front of the organization.
 Debt or bank loan: Under debt or bank loan, company has to repay amount in the form of installment along with the interest
payment Referring this, it can be presented that bank loan source of finance imposes fixed financial burden on firm.
2.2 The importance of financial planning for Osborne Terrace restaurant
Financial planning is the process which business entity undertakes for managing finance as per the business activities need to be
performed during an accounting year. It helps in effectively utilizing the financial resources of the company to achieve the objectives
of firm.