Report on Managing Financial Resources and Decisions: Clariton Ltd

This report examines the financial resource management of Clariton Antiques Ltd., a company looking to expand its business. It explores various sources of finance for both unincorporated and incorporated businesses, including owner investment, retained profits, venture capital, bank loans, and hire purchase. The report analyzes the implications of different financing methods, comparing internal and external sources, and discussing the financial and legal implications of each. It then delves into financial planning methods like budgeting and the importance of information gathering for decision-making, particularly when securing funds from venture capital and banks. The report also assesses the costs associated with different financing options, such as dividends, interest, and tax implications, highlighting the importance of financial planning to avoid overtrading and ensure business stability. Finally, it identifies key information sources, including partners and venture capitalists, necessary for sound financial decision-making.

Managing Financial
Resources and Decisions

Table of Contents
Introduction......................................................................................................................................3
Task 1...............................................................................................................................................3
1.1 ................................................................................................................................................3
1.2.................................................................................................................................................4
1.3.................................................................................................................................................5
Task 2...............................................................................................................................................6
2.1 ................................................................................................................................................6
2.2 ................................................................................................................................................6
2.3 ................................................................................................................................................7
2.4.................................................................................................................................................8
Task 3...............................................................................................................................................8
3.1.................................................................................................................................................8
3.2.................................................................................................................................................9
3.3...............................................................................................................................................10
Task 4.............................................................................................................................................14
4.1 Components of financial statements....................................................................................15
4.2...............................................................................................................................................16
4.3...............................................................................................................................................16
Conclusion.....................................................................................................................................19
References......................................................................................................................................19

Introduction
Every organization need to manage the for carrying out its business function in
appropriate manner. If company unable to manage all its finance then it can suffer from loss and
unable to expand business. The present report it based on Clariton company which was
established by four brother. Now it want to expand its business in new geographical area. In the
present study different sources of finance available for business are discussed. Apart from this,
importance of financial planning also explained in detail.
Task 1
1.1
According to the given scenario, Clariton Antiques Ltd was established by the four partners and
it was started as an incorporated business. Further, the organization has developed good
reputation in the market by selling Antiques items. Now, it is looking forward for expanding
business in Birmingham by opening the new branch. For this purpose, it needs to raise fund from
different sources so that it can expand its business without facing any problem regarding finance.
There are two type of business in which different sources of finance available are discussed
below:
A.) Unincorporated business: Unincorporated businesses are not required to follow any laws and
legislation which are made by the government(Akhtar and Kröner-Herwig, 2015). Owner holds
the responsibility of overall ownership and liability and there is no interference of government.
There are different sources available to the unincorporated business for raising fund which is as
follows:
Sale of fixed assets in this company sale its assets in market which are not longer in use.
Along with this, it is an internal stock which not creates any burden on firm of paying any
interest. It is a medium term sources of finance for Clariton antique limited.
Retained profit: Retained profit is the owner’s own money which it can use anytime and
anywhere. It is one of the best sources of finance because company do not pay the opportunity
cost or interest to others. It is a medium and long term sources of finances which Clariton
Company not need to repayed. Along with this, if business use it profit then it is not necessary
that it enough profit earned from new business.

Owner investment: Owner investment is the long term money which will be in the form
of start up capital. This can be used up at the time of expanding the business. Along with this, it
can be in form of additional capital which owner can use for expanding a business.
B.) Incorporated business: Incorporated businesses are those companies which cannot be start
before completing any legal formalities. There are different types of rules and regulation which
the company needs to follow which are made by regulatory bodies. There are some sources of
finance which are available for incorporated business and that are as follows;
Venture capital; There are many organizations which uses the external sources of
finance. Venture capital provides finance to the organization for expanding its business. Along
with this, it charges financing cost in term of stake from business. This may increase burden of
expenses on the organization which will overall impact the profit of business.
Hire purchase: It is also an external source of finance for the organization. In this, firm
hire some property or assets from the external party on rents. In this, the business raise fund in
instalments and after paying the instalments amount, he becomes the owner of the property and
assets.
Bank loan: Firm can raise fund from bank by fulfilling some legal formalities. Along with
this, it also needs to pay loan amount to bank with the interest every monthKo, and Lee, 2015.)..
Along with this, company can take loan for longer or shorter period of time from bank.
1.2
There are different sources of finance which have different implication on Clariton antique
limited
Internal and external
sources
Financial implication Legal implication Dilution of control
Retained profit It is the company’s
own profit, so firm do
not face any type of
financial implication
For using own money,
company do not need
to fulfil any legal
formality it can use its
own money anytime
without anyone
permission
There is dilution of
control owner

Bank loan If company raise fund
from bank, then it is
required to pay interest
every month. This
shows that firm face
financial implication
For raising fund from
bank, organization is
required to fulfil some
legal formalities.
Before, fulfilling legal
formalities, it cannot
take loan
There is no dilution of
control
Hire purchase In this, the owner pays
for their assets in
instalment. This shows
that company suffer
from financial
implication.
For raising fund form
hire purchase,
company need to fulfil
the documentation
process
In this, dilution of
control is in hire
purchase instead of
organization.
1.3
Clariton Company wants to raise fund for expanding its business. There are two sources of
finance which are beneficial for the organization for expanding its business in another country
which are as follows:
Bank loan: For taking loan from bank, the company needs to fulfil some legal formalities.
Along with this, it is required to pay the fixed amount of interest every month. Bank provides
loan to business after seeing their financial position whether company is capable of paying loan
amount or not. This source of finance is best for the Clariton antique ltd. because it is financial
stable and it not face any problem at the time of taking loan from fund.
Venture capital: Venture capital is one of the best sources of finance for Clariton antique ltd.
It is one of the best options for the organization for raising fund because it best financial services
with better advice. One of the benefits of the venture capital is that it gives best suggestion to
owner of the company whoever takes fund from them. Along with this, it charges low interest as
compare to other sources that provide funds. Venture capital increases shareholder of the
organization where it need to pay high dividend which affects the profitability of business.

Task 2
2.1
Cost of charge
A.) Dividend: Clariton Company takes loan from venture capital where it needs to pay interest
and impose cost of finance on the business. The organization is required to pay cost in term of
stake to venture capital then it turn into shareholder of the firm(Matheson and et.al., 2016.)..
Along with this, it also needs to pay dividend from its earning which affect the profit of Clariton
Company. As per the given scenario, venture capital is taking cost that is 20% from the
organization. It has some negative impact on organization i.e. if company take fund from the
venture capital then it need to impact cost of finance of Clariton company. It also increases the
indirect expenses and affects the profit in negative manner.
Interest: bank loan is another source of finance which can be used by Clariton Antique ltd. It
imposes financial cost on the organization and charges interest on the loan amount. Along with
this, company need to keep some security to bank before taking loan so that in case if company
fails to pay loan then bank repayed it with security. If company take loan from bank then it
negatively impacts the profit of organization. Ifs cost of raising fund it high then company need
to pay high interest. Bank take charges of loan amount in term of interest. Along with this it also
impacts the balance sheet in negative manner.
C.) Tax: Tax is one type of expenses which lead to impact the profit of company. Along with
this, it is one of the expenses for Clariton company but if company take loan from bank
then it not need to pay tax. So there is tax relaxation for the organization which postivly
impact the financial statements. If there is lower the tax amount then it lead to reduce
fixed cost and increase company profit.
2.2
Financial planning play important role in managing the finance in organization. For Clariton
company it is necessary to for the organization to planned all the financial activities so that in
future it not face any type of issues related to finance. Along with this if company planned all its
fiance and it can easily reduce all its unnecessary expenses which help increasing the profit. With
proper planning of finance company can easily expand its business in different geographical
area. There are various financial planning method which are as follows:

A.) Budgeting: Budgeting is one of the best method for which Clariton company can used for
managing its all finance in effective manner. If company make budget for its all activities then it
can easily manage whole work in reduce the unnecessary expenses. If company make budget
then it ensure that all resources are used in effective manner and not spend money on unwanted
activities. Budgeting help Clariton company to become financial stable and earn profit without
wasting much finance.
Implication of failure to finance adequately: Clariton company is one of the successful company
which want to expand its business in new country. For this purpose it need to understand the
implication if it fail to manage its finance. If the organization unable to manage its finance
properly then it cannot operates its all business activities in effective manners. Along with this it
increase unnecessary expenses and reduce revenue which unable organization to expand business
in different geographical area.
Overtrading; Over trading take place when company unable to sale it products and services and
expand its operating activities. It negatively impact the organization and its profit. There are
certain type of problem which can be faced by Clariton company due to over trading such as run
out of working capital and liquidity problem (Eckerd, 2015).. If company plan all its finance in
systematic manner then it will not face any issue related to over trading. Apart from this in over
trading there is increase in production and resources are few which impact directly the financials
stability.
2.3
Information for making decision
Clartion company want to expand its business and it is a partnership firm, so for making any
financial decision it need to collect some information. Clariton company is raising fund from
bank and venture capital so it need to focus on collecting information from different sources for
making suitable decision. There are different type of information which can be collected by
organization from different sources that are as follows:
A.) The partners: Clariton company need to collect information from its partner in relation
raising fund. It is necessary in partnership business that each and every partner know all the rules
and regulation so that no problem occur at the time of carrying out business in effective manner.

All partners need to share profit and loss equally so they need to share information which lead
making appropriate decision.
Venture capital: Clartion company is expanding its business so it is taking a loan from venture
capital. For this the organization should know whatever interest charged by We finance limited.
Along with this it also need collect information how much dividend it need to pay to venture
capital after taking loan from them. According to the given scenario, We finance limited
charging 20% of stake from loan amount that is 0.5m. On the other other hand Clartion company
need to provide information of its financial stability to venture capital, so that they can take
decision whether it need to give loan to company or not.
Finance broker: Finance broker is intermediaries between bank and organization. It also charge
some interest on loan amount. It charge 2% of loan amount from the organization in ten years.
So at the time of taking loan from bank company need to charges collect information how much
broker charged from them for providing loan.
2.4
There are different type of financial statements which are prepared by Clariton company such as
income statements, balance sheet and cash flow statements. If company raise fund from different
sources then it impact all the financial statements of organization. Impacts on various financial
statements are as follows:
Venture capitalist: Clariton company is taking loan from we finance limited so it need to pay
interest to them in term of stake. Along with this company pay dividend to its shareholder from
its earned profit. This impact the profit of Clariton company which reflect in income statements.
In profit and loss statements it show that expenses increases and profit negatively impact. Apart
from this, capital liabilities of the firm increases which show positively on balance sheet.
Finance broker; Broker also charge from Clariton company for providing loan from bank. It is a
expenses which show on income statements. It show in assets side of financial statements as loss
of company. While balance sheet it shown as liabilities side and impact positive.
Task 3
3.1
Clariton company is expanding its business for this purpose it need to manage all its
finance which can be done with the help of budgeting. There are different type of budget which

help organization in avoiding unnecessary expenses and help in managing finance in effective
manner. Given below the cash budget of Clariton company
From the aforementioned budget of Clariton company it show that cash flow in month of may is
high and in month of January it was low. Low cash I budget reflect that company have no control
on its direct expenses. On the other hand it company have high cash flow it show that Clariton
company is capable for managing all its expenses. From the above budget it show that in month
from jannuary to june it is increasing. But due to some fluctuation in payment it directly
affecting the closing cash balance of Clariton company. In some month it face negative cash flow
which show that company need to make some strategy to overcome the expenses. For this
Clariton company need to use economy scale in which help in increasing the productivity of the
business and reducing the cost of production. Along with this, it also need to make some
strategies so that it can attract customer for increasing the sale and profit.
3.2
Cost per unit is that in which derive after reducing the expenses per unit and cost of
overall production. There are different pricing method which company need to use for so that it
can easily increase the sale and earn high profit. There are different pricing method such as cost
plus pricing, skimmed pricing etc.

Clariton company can use any pricing method for increasing it sale it depend on the expected
profit which company want to earn. Company used cost plus pricing method for increasing it sale
and profit.
Aforementioned, table show that total cost is £31000 and formula used for calculating is
£31000/155 per unit. In above measure it show that cost per unit which derive expenses and
various cost of production.
3.3
Investment appraisal techniques
There are different appraisal technique which company can used for expanding its
business. Clariton company want to expand its business in new country for this it launch new

project which can be analyses through the different techniques. All the financial tool for
identifying which technique is appropriate are used below:
Net present value method; the net present value method which help in reflecting the different
between cash inflow and outflow. It is one of the effective method which company can used for
calculating investment is beneficial or not.
Aforementioned, from the table it show that, in project 1 net present value is 3.37 while in
project B net present value is 2.53 . this show that in table 1 value is high and in investment 2 it
is low. So Clariton company will go with project A because it value is high which show that
company earn profit from this project.
Pay back period method: Pay back period method is a method which can show the time
of required for recovering the amount of investment. Clariton company will go with that project
which take less time in recovering the amount of investment. Here below are given the payback
period of both project which help in identifying which project is better for them for expanding
the business.

From the above chart it is clear that company investment will be recovered in 3.2 years in
project A while in Project B it take more 3 years for recovering the investment amount. Hence, it