Financial Resources, Decisions, and Planning for Business Operations

This report delves into the critical aspects of managing financial resources and decisions for a business, specifically using the example of establishing an Osborne Terrace Restaurant. It explores various financial sources, including internal and external options like personal savings, bank loans, share capital, and lease agreements, along with their implications. The report emphasizes the importance of financial planning for decision-makers, covering budgeting, forecasting, and investment appraisal techniques. It also examines financial statements, ratio analysis, and the information needs of internal and external stakeholders. The report provides cost analysis for each financial source, demonstrates the significance of financial planning, and explains the impact of finance on financial statements. Furthermore, it includes budgeting and forecasting for the next six months, unit cost calculations, and investment appraisal techniques for choosing the best project, providing a comprehensive understanding of financial management principles.

Managing financial
resources and
decisions
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Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
1.1 Different financial sources.....................................................................................................3
1.2 Implications of financial sources...........................................................................................4
1.3 Selection of best suitable financial sources...........................................................................5
2.1 Cost analysis for each financial source..................................................................................5
2.2 Significance of financial planning.........................................................................................6
2.3 Information needs for internal and external decision makers................................................7
2.4 Impact of finance on financial statements and importance of financial sources to influence
statements.....................................................................................................................................8
3.1 Budgeting and forecasting for next six months' business operations...................................8
3.2 Unit cost calculation for establishing Osborne restaurant and pricing decisions................10
3.3 Investment appraisal techniques for choosing best project..................................................10
TASK 2..........................................................................................................................................12
4.1 Different financial statements and their objectives..............................................................12
4.2 Comparing financial statement to be prepared for different types of businesses................13
4.3 Ratio analysis.......................................................................................................................13
CONCLUSION..............................................................................................................................15
REFERENCE.................................................................................................................................16
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Illustration Index
Illustration 1: Budget for Osborne restaurant................................................................................12
Illustration 2: Unit cost and pricing decisions...............................................................................13
Illustration 3: Pay back period for further investment...................................................................14
Illustration 4: ARR as investment appraisal technique..................................................................14
Illustration 5: NPV for selecting best project................................................................................15
Illustration 6: Ratio analysis of Sainsbury.....................................................................................17
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INTRODUCTION
Managing financial resources and decision is key component for operating further
business activities. It is effective for analyzing actual financial position on the basis of which
plans are prepared for organization's effectiveness of organization and improving efficiencies at
high level. The present report is to understand different aspects of financial resources and
decisions for establishing Osborne Terrace Restaurant. It is contract finder opportunity for
accomplishing task related to operating small business entity at large scale by 2020. In this
regard, different financial sources including critical evaluation on them can be described.
However, importance of financial planning for decision makers and finance significance to
prepare statement is to be expressed through this assignment. Including this, budgeting and
forecasting plan entity's commencement can be understood for decision making to expand
business firm. Along with this, investment appraisal techniques to select appropriate project is to
be introduced that leads to following on decided plans. Thus, students are able to understand
importance of managing financial resources and decision for commencement of organization and
different tools for business operations through this report.
TASK 1
1.1 Different financial sources
There are different kinds of financial sources to grab opportunity to establish Osborne
restaurant. Therefore, entrepreneur can use various sources to establish Osborne. Some of them
are expressed as under
 Internal sources
 External sources
Internal sources
Fund can be allocate from following sources internally:
 Personal sources: The owner put its own capital into the business. This is the cheapest
source of finance which is readily available. It includes savings, personal cash balance,
borrowing from friends and family (Bakand, Hayes and Dechsakulthorn, 2012). It
includes getting financed from family and friends and involving them in day to day
activities of the business with a percentage of profit sharing that the business earns.
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However, for affirmative results, it requires their agreement on the decision. Some may
not be ready to put their money and get involved in extra business.
External financial sources:
At external level, finance for organization's establishment can be gained through
following sources:
 Bank loan: Loans are provided by bank at a specific rate of interest and fir the specific
time frame. Bank requires a guarantor who guarantees that you will return the principal
amount with the specified interest in specified time period. However, much flexibility is
not provided to borrower in terms of interest and time duration (Cheng, Ioannou and
Serafeim, 2014).
 Share capital: Share capital consist of all funds raised by companies in exchange of
either common or shared preferred stock. The amount of share capital or equity finance
that company can change over a period of time as per market requirement and company
objectives.
 Venture capital: Professional investors manage this kind of fund. A specific kind of
investment is made by them and it is managed by professional investors (Pasquariello,
2014). If the investor like your business idea he will invest in your business with the fact
that they may demand a certain percentage of profit or decision making is some areas of
business depending up on the contract.
 Lease: It is a contractual agreement between the two parties where one party gives right
to the other party to use the asset in return to some rental payment. Osborne can take its
fixed assets on lease (Midrigan and Xu, 2014). Since, fixed asset demands heavy
investment, it will reduce the burden from the company
 Bank Overdrafts: It is a short term source of finance. It allows the business to make
payments from their current bank accounts even if the necessary balance is not available
in the bank account. There is a certain limit specified by every bank to while availing this
facility. Bank charge interest on the overdrawn amount (Battiston and et.al., 2016).
1.2 Implications of financial sources
As per critical evaluation on financial sources, some implications are obtained for getting
sources that can be expressed as follows:-
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Sources Financial
implications
Legal
implications
Bankruptcy Dilution of
control
Bank Loan Huge financial
implication as
bank possess the
property against
loan.
Subject to assets
seize in case of
defaults.
Total risk of
bankruptcy if
payment of loan
is failed for
business projects
as seized assets
will be auctioned
to recover bank
loan amount
No dilution of
control
share capital Percentage of
profit would be
dedicated to
investor in share
capital according
to investment in
share which will
be return in
contract and they
will start
receiving it as
they achieve
break even
In case of share
capital legal
agreement is
required and
signed by both
the parties and.
Each stack holder
has a right to cast
the vote in boar
election to
manage the
meeting.
In case of
bankruptcy
payment to
outsiders first will
be made and
suppliers and then
internal
settlement is
made.
There will be
case of dilution of
control in share
capital
Lease In assets lease
GST is charged
on monthly lease
rental and on the
residual value at
Lease agreement
documents is
required.
In this bankruptcy
suppliers must
file case for first
payment.
Dilution of
control over
company is not
diluted but pull
out of assets in
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the end of the
lease . The
company can
claim the lease
rent as tax
deduction.
case of default
that may hamper
operation.
Bank overdraft Company is
obliged to pay all
charges, penalties
and
miscellaneous
charges in
overdraft if not
paid on time.
Need to fill up a
form in which
promise to pay
repayment with
charges
In case of
bankruptcy first
need to be paid
from the residual
assets of the
company.
No dilution of
control over
company.
1.3 Selection of best suitable financial sources
Bank loan and share capital are best source of financial source. So in selecting the best
source following points need to be considered Repayment terms, Interest and Fee Structure,
Additional requirement. So in repayment term company need to consider payment term should
not be too large and not too small (Segal, Shaliastovich and Yaron, 2015). Company also need
to consider whether interest rates are high or low so that extra cost can be prevented in running
business because excess interest rate can down the company profit. If company need additional
requirement then they should sell their assets.
2.1 Cost analysis for each financial source
Entrepreneur analyses cost to be incurred for getting sources of fund from each source
critically. Therefore, positive and negative both aspects can be identified to select best option. In
this regard, interest incurred on loaning and different factors are to recognized that affects on
further business operation also helpful for forecasting regarding establishment of Osborne
restaurant according to government contract that is interrelated with productivity and
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profitability of entity (Bartram, Brown and Waller, 2016). He sets target to arrange 20,000 AUD
for establishment. However, following tools are recognized for financial sources can be
understood briefly as:- Personal saving:- Entrepreneur can use his own savings for establishment of restaurant
as well there will be no interest or additional charge to be refunded for financial source.
Therefore, it will be easier to getting source through using personal saving or taking
financial aid from his family and friends (Segal, Shaliastovich and Yaron, 2015). Thus, it
will be reliable to establish new entity for effective food services. Taking loan from bank:- As set financial target is quite high so bank can help effectively
to allocate this fund. In this regard, high level of finance can be allocated from bank for
which institution charges interest on loan. Hence, it is needed to analyzing interest rates
and forecasting its impact on financial position of restaurant. Thereby, adequate fund can
be allocated from this source to grab opportunity of contract to establish new entity
(Pasquariello, 2014).
 Share capital:- For commencement of restaurant, different techniques are used to attract
people to increase share capital. However, calling up shareholders for effective shares can
be a great source for finance to establishment. It is considers as external source by which
adequate fund can be allocated for restaurant establishment (Subrahmanyam and Titman,
2013). In this regard, it is needed to be focused on agreement for providing dividend as
well all terms and conditions regarding equity shares and different sources.
2.2 Significance of financial planning
Financial planning means planning your finances. Finances are planned in order to get
maximum benefit from the available resources. A proper plan of action is prepared. Based in the
current financial condition a future statement is prepared discussing about the incomes and
expenses about the business. An estimation of future cash requirement is prepared to find the
ways of how the cash can be generated in future.
It is important for Osborne to do financial planning. Following are the reasons below:
 To ensure that adequate funds are available with firm. It leads to expansion and growth of
a business.
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 To stabilize the inflow and outflow of funds. It ensures optimum utilization of available
funds and restricts over spending.
 It’s one of the objective is to frame financial policies for lending and borrowing of funds.
Osborne can keep a check on its borrowing and lending activities.
 It will help Osborne to reduce uncertainties and also, ensures its the stability and
profitability.
Financial planning can be undertaken with the help of the following elements in Osborne:
 By determining the financial objective, which is based in the company’s overall objective
of Osborne.
 By estimating the long term and short term capital requirements of organization.
 By determining the kind of securities that will be issued by Osborne.
 By determining the lending and borrowing process of entity.
It is significant to do proper financial planning for Osborne. Since, it is the factor that
decides the future of the entity (Murphy, 2016). It is important to have a good grip over the
financial planning of the restaurant.
2.3 Information needs for internal and external decision makers
Accounting entails recording, categorize and summaries of all business transaction. It is a
procedure of identification, measuring and communicating of economical collection involving
four connection form (Vejzagic and Zarafat, 2014).
Phase of preparing financial statement:-
 ledger posting
 Trail balance
Internal users or primary users of accounting information include:-
 Management:- Accounting message is of important assistance to administration for
preparation, controlling decision making cognitive process. Also accounting information
is helpful to managers to do their jobs better (Tatom, 2014). Accounting information
beneficial for every organization because employee have knowledge about the financial
condition of organization.
 Employee:-Employee use the account information to find out the financial health,
amount of sales and profit of the organization for there job security and safety.
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 Owners:- Owners use the accounting information for forecasting and analysis the
property and profitability of their organization and investment. It also vantage them to
determinant any future coursework of action of the organization.
External users or Secondary users of accounting information include :-
 Creditors:- Creditors are involved in accounting information because it modifies them to
determine the credit worthiness of the business and help the organization at critical
situation.
 Investors:- They requirement the information, become they are preoccupied with the
risk intrinsic in investing and the returns of the investment.
 Customers:- customer's have interest in the accounting message for evaluate the
financial position of a business ,especially in this accounting systems.
 Regulatory authorities:- The accounting message is required to secure that it is in
accordance with the rules and regulations and that it provides and covers all organization
aspects.
2.4 Impact of finance on financial statements and importance of financial sources to influence
statements
Business regularly put out financial subject matter such as the income statement, balance
sheet and cash flow statement. when this financial evidence released,they associate have larger
contact on the enterprise and on the investors of the company and the business ensure that
financial statement is important for running in this competitive market scenario.
 Impact on company's stock price:-financial statement affect the stock price because the
stock price depends on the organization financial statement because te company's top
management change in financial plan than share market price is up down (Nixon, 2015).
 Financing Decisions :-financial statement can also impact on how simple it is for a
business concern to get financing. Financial statement is affection on financing decision
because many organizations are work on different strategic.
 Attract new investors for organization:- company adopts low earning strategic
numbers can not destructive effect the number of capitalist willing to invest in this
organization (Andréadès, 2013).
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Finance is considered as provision of money includes investment and getting sources for
business operations. In this regard, decisions are made for investing and getting sources of fund.
It involves gained revenue and spending on expenditures to operate business activities. However,
actual financial information of organization is gained through this process. Including this, it is
helpful to attract new investors to share their fund in company's share capital for business
operations. Therefore, stock price get impacted also identifies organization's potential to refund
on shares. Finance involves different items as sales, collection of money, owners' capital,
expenses, payment of principal and so on that affects economic position of entity. In accordance
to this, gained revenue on selling items impacts income statement and monetary performance of
firm. Along with this, when company issues new shares, it is interrelated with dividend or refund
on shares affects profit and loss account of entity.
Moreover, bills, receipts and data remains interlinked with organization's financial
position to operate business activities. Besides this, leasing approach also impact on economic
position of entity that generates different ideas for further investment and getting sources of fund
in future time. Hence, finance impact on financial position of organization in different ways. It
provides ideas for further operations as well income and expenditures on production and
distribution of goods are gained through financing. It is also suitable for proper financial
management and fund allocation effectively.
3.1 Budgeting and forecasting for next six months' business operations
Budgeting is an approach for forecasting and decision making related to further business
operations. In this process system, actual performance of organization is analyzed as per which
further business operations are created (Nixon, 2015). Therefore, for commencement of Osborne
Terrace restaurant, decision maker forecasts return on investment for next 6 months. For this
purpose, he prepares budget plan as follows:-
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Interpretation:- Organization is to be established on 1st January therefore, forecasting
and decisions making is proceed for further months to get return on investment. For
establishment of Osborne Terrace restaurant, decision maker forecasts for getting return for next
6 months from January to June. It is forecast that in January, organization will provide service of
15000 as well different estimations are created for further months. Further, by analyzing return
on this, different outcomes may achieve as like in continuous starting of three months, entity
may face loss because of bad economic condition. However, market structure is not quite well so
succession of establishment is just challenging and risky. As per market analysis, it is analyzed
that from April, entity can stable its economic condition as well balance can be gained in future
time. Including this, it is forecast that for month May and June, restaurant will be achieved
proper succession that affects productivity and profitability.
3.2 Unit cost calculation for establishing Osborne restaurant and pricing decisions
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Illustration 1: Budget for Osborne restaurant