Financial Resource Management: Sources, Costs, and Planning

This report analyzes financial resource management, using Clariton Antiques Ltd. as a case study. It explores different sources of finance for unincorporated and incorporated businesses, evaluating the implications of each, including bank loans, personal funds, and government grants. The report delves into the costs associated with various financial sources, such as shares and loans, and emphasizes the importance of financial planning, including capital requirements, arranging financial sources, and resource utilization. Business information assessment for decision-making and the formation of a cash budget are also discussed. Investment appraisal techniques and the key components of financial statements are examined, along with a comparison of financial statements between two firms and an analysis of Clariton's financial ratios. The report concludes with a summary of findings and recommendations for effective financial resource management.

MANAGING FINANCIAL
RESOURCES

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
1.1 Different sources of finance..................................................................................................3
1.2 Implications for using different sources of finance...............................................................4
1.3 Evaluation of most appropriate sources for financing..........................................................5
TASK 2............................................................................................................................................5
2.1 Cost of financial sources.......................................................................................................5
2.2 Importance of financial planning..........................................................................................6
2.3 Assessment of business information for making business decision......................................7
2.4 Impacts on financial statements............................................................................................8
TASK 3............................................................................................................................................8
3.1 Formation of cash budget......................................................................................................8
3.2 Unit cost and pricing.............................................................................................................9
3.3 Analysis of investments using investment appraisal techniques.........................................10
TASK 4 .........................................................................................................................................11
4.1 Key components of financial statements.............................................................................11
4.2 Comparison between financial statements adopted by two firms.......................................11
4.3 Financial ratios of Clariton company..................................................................................12
CONCLUSION..............................................................................................................................13
REFERENCES..............................................................................................................................14

INTRODUCTION
In the market, the organizations are been established with a motive to earn high profits
and attain greater market share in the industry. Further, for the incorporation as well as to run the
business they require sufficient amount of funds to perform there activities in an efficient
manner. Thus, there is a requirements of adequate financial management which will ensure with
the adequate amount of funds to achieve the objectives (Baranov, 2015). Thus, it is highly
important to evaluate with the places and means from which the amount can be acquired and take
measure to efficiently utilize them to get the maximum results out of it. In the present report, the
case study of Clariton Antiques Ltd is been taken into account for developing with the efficient
management of financial resources in the organization. There are several parts involved where
the different sources of finance are been discussed which are most opt for the company. In
addition to this, they are also focusing on the expansion of there business. Further, various
decisions are made for acquiring with the sources of finance and for it different plans are been
developed.
TASK 1
1.1 Different sources of finance
Unincorporated business
It refers to an organization which is been owned and managed by one or more people is
termed as unincorporated business unit. Further, under this they are not having with there
isolated legal entity so the liability of the owner increases with it. In this, sole proprietorship and
the family businesses are mainly involved (Brignall and Modell, 2011). The available sources of
funds for unincorporated businesses are bank loan, overdraft from bank, personal funds, friends
and relatives, retained profits, sales of assets etc. When these kinds of companies apply for bank
loan, the bank uses their personal assets and credit score as a base with the aim of find out the
credit worthiness of business. Unincorporated businesses can arrange funds by friends and
relatives for the short time frame at low interest rate as compare to bank loan interest rates.
Incorporated business
It is a type of business that offers various benefits to employer as compare to being a sole
proprietor or partnership. Under this, these types of organizations have to paid liability and tax. It

has included private and public limited companies where there are several sources of finance
have available for these businesses. With the help of venture capital, companies get the
assistance in terms of operational, finance and strategic advices. In this, firms do not need to
repay the money to venture capitalists. Along with this, by issues private and public shares,
incorporate businesses can easily raise the funds in easier manner. Further, bank loans are the
most important source of longer term business finance.
1.2 Implications for using different sources of finance
Internal resources Retained capital- It is also free by the implications made legally and do not bear with any
type of loss in the power of the owner. It is due to the fact that retained earning are the
part of left over profits of the total revenue earned by the organization (Crosby and
Henneberry, 2016). Thus, in this the complete ownership is in the hands of proprietor and
they serve with all the rights to make the decisions without getting any type implications
related to the financial and legal norms.
 Personal funding- It refers to the internal source of funds which is been attained by the
personal income of person which he has saved for the establishment of the business.
Moreover, it can also be acquired by there family members, relative and friends. Further,
the major implication of the personal saving which is lost when the company is been
started. Moreover, by this it will have no implications in terms of legal norms. They are
been controlled individually and have to bear losses if the company do not give positive
response.
External sources Bank Loan- In this the person can acquire with the funds by the banks which involves
with large number of formalities. It mainly includes the documentation regarding the
proof for the bank against the sanctioning of amount. Further, these details assist the
banks to get the details of the company and there value in the market. In this the
implicated in context to the financial norms is low as the entire company is responsible
for the payment of the interest to the banks.
 Debentures- For acquiring with the funds, the company can issue with the debentures to
the people. In this both the parties make the legal agreement to develop with the bond.
Thus, the company is liable to pay a fixed rate of interest to them against the purchase of

debentures (Czarnitzki and Hottenrott, 2011). Further, it is considered to be an efficient
means to get the funds as it will not dilute with the control of company from there hands.
In this, the issuer is not confined to pay for any type of stamp duty for it.
1.3 Evaluation of most appropriate sources for financing
According to the case study given, it is been evaluated that Clariton Antiques company is
planning for the expansion of the there business in the market so for it they need to acquire with
sufficient amount of funds. Further, there are large number of sources which the company can
adopt for getting sufficient amount for the same. Thus, the following are the major implications
which are been incorporated while choosing with different sources of acquiring funds. This will
help them to select with the best option which is highly beneficial for the firm.
 Bank loan- It is considered as one of the most popular source of acquiring funds by the
market as it highly safe and they can pay back with the interest charged by them. Thus, it
is highly beneficial as there is less amount of financial implications upon the business. It
is less riskier than other means of raising funds for the company.
 Personal savings- It is also an efficient means of raising finance as in this the person
uses its own savings and is not liable for paying the interest on it. Along with this it will
be all time available for desired purpose of business and without going for any legal
implication on it. Thus, it will help the company to earn with greater returns (Eckerd,
2015).
 Government grants- It proves to be an successful source of raising funds which will
help in expanding with the business to a greater extent. In this the interest rate charged on
the entity is less in comparison to the other means. Moreover, it involves with less risk
and also cost effective in nature. Thus, it can be said that the firm must acquire with the
funds using the government grants.
TASK 2
2.1 Cost of financial sources
It is been evaluated that with the process which involve the raising of funds by different
means involves with some cost that need to be taken into consideration while opting with the
means. Thus, with the help of this the organization can identify with the sum of amount which is

needed and the further decisions accordingly. Further, the following are the major sources of
funds and the cost incorporated with it: Shares- For the issue of shares among the public to acquire with the funds will add some
cost for the company. Thus, the amount which is to be paid in the form of dividends is the
major factor incorporated with it. Further, dividends are the crucial part of the profits
earned by the company and has to be given on a fixed amount to the shareholders
(Epstein and Buhovac, 2014). Thus the form or the rate at which the dividend has to be
given can be determined by the company itself according to the evaluation of there assets
and liabilities. But it is highly beneficial for the company as in this case, the firm will not
be entitled with any type of debt liability to repay every month. Moreover, this method
will create lesser burden on the enterprise and will be highly helpful in creation of
revenues by making shareholders of business happy.
 Loans- It is been analysed that loans are easy to raise and are a crucial source for
arranging with funds for the company. For the stated case in for the company, it will be a
additional burden on the firm as they need to provide with the interest on the regular
basis. Thus, the company may not be in a position to repay the loan amount due to
several number of reasons.
2.2 Importance of financial planning
Financial planning is considered to be an integral part of the organization which help
them to make the major decisions related to the raising the funds for them. Further, developing
with the proper plans will highly assist in managing with the resources and the expenses incurred
to the company. Thus, with the formulation of the proper plan, it will help them to evaluate with
the funds which are been required by the company. Further, they can make the decisions related
to the short term as well as the long term objectives accordingly. The following are the major
elements which is highly beneficial in planning for the financial terms.
 Determination of capital requirements- It is termed as one of the most important step
involved in the financial planning. This highly assist in making with the decisions related
to the amount of funds which is required by the company. This can also be considered as
the important step for forecasting the funds which are been to acquired in the
organization. Further, it will highly assist in making with the decisions related to the

various aspects that are a very important factor in the determination of the funds (Finance
and Network, 2013).
 Arranging for financial sources- It is been seen that there are large number of options
provided to the organization for raising with the funds. Thus, it is the duty of the manager
to adopt with the most efficient means which is highly beneficial for the company. Thus,
it is one of the necessary step which is been required capital can be collected in adequate
amount as scarcity of money can raise disturbance in smooth functioning of various
operations. Along with this, the expansion activity may also result in failure and heavy
losses if it is not started with proper planning.
 Proper utilization of resources- Efficient financial planning is a vital step as it ensures
with the proper utilization of the resources acquired by the company (Geng, Bose and
Chen, 2015). Clariton Antiques can develop with the planning by going through an
effective analysis of the activities involved in the company which will help them to come
up with the most appropriate plan for them. Moreover, it is crucial to make forecasts for
acquiring with various sources and selecting the most suitable one.
2.3 Assessment of business information for making business decision
In an organization there are large number of people are important for making the
decisions for the business. For making the right decision, these persons require a sufficient
amount of information that should be availed by company. The elaboration about it is given in
below section:
 Partners- It is been evaluated that there are mainly four partners which are involved in
Clariton and are responsible for making the decisions for the business. Further, the major
statements formulated by the business are income and expenditure statement, Profit and
loss account and balance sheet. Thus with the help of all these statements will highly help
in analysing the current situation of the business which assist in making the efficient
decisions for the business.
 Venture capitalist- There are large number of ventures which are appointed for taking
the major decisions for the company. Further, We finance is one of the venture capitalist
which will take the major decisions by analysing various risks related to business so that
important decision can be taken to minimise it (Guthrie, Olson and Humphrey, 2010).

2.4 Impacts on financial statements
It is been analysed that if the company will adopt with the venture capitalist and financial
broker, than it will highly assist them in having a positive impact on the financial statement.
Further, affects that will be exerted upon the statements have been explained in following
statement: Venture capitalists- When the organization opts with this, than they need to show it on
the liability side of the company's balance sheet as it a major part of liability. Further, the
company will be than liable for paying the amount of dividend. Besides this, it will have
an impact on assets sides as well because the amount acquired from venture capitalist will
increase the cash amount of company that will be entered in the assets side of balance
sheet.
 Finance broker- The adoption of the brokers will have its impact in profit and loss
statement of organisation. This option will not have any affect on the balance sheet of
the enterprise (James, King and Suryadi, 2011). On choosing finance broker, the entity
will have to pay brokerage which will amount for an expense for venture and its entry
will be done on debit side of P&L account.
Entry in Profit and loss account
Particulars Amount in £ Particulars Amount in £
Brokerage xxx
Entry in Balance sheet
Liabilities Amount £ Assets Amount £
Venture capitalist xxx Cash xxx
TASK 3
3.1 Formation of cash budget
Cash budget for January to June.
January
Februar
y March April May June Total

Different means of
cash inflow
5% of the current
month’s sales 15000 22500 30000 15000 15000 3750 101250
80% of the earlier
month’s sales 120000 240000
36000
0 480000 240000
24000
0 1680000
15% of the second
last month 22500 22500 45000 67500 90000 45000 292500
Sum amount of cash
inflows 157500 285000
43500
0 562500 345000
28875
0 2073750
Cash utilization or
outflows
Payments 807250 137250
11975
0 437250 227250
21975
0 1948500
Sum of cash outflows 807250 137250
11975
0 437250 227250
21975
0 1948500
NCF (CI-CO)
(Shortfall/surplus) -649750 147750
31525
0 125250 117750 69000 125250
Add: Opening
balance 110000 -539750
-
39200
0 -76750 48500
16625
0 110000
Closing cash position -539750 -392000 -76750 48500 166250
23525
0 235250
Cash Budget of Clariton determines that the working capital management methods is not
a consistent one used for all the months. Further, it is seen that there is a negative cash balance
estimates for different months such as in January, February and March which is negative sign in
relation to the proper management of cash. Company can plan with the expenses upfront and
divide the impact over the months to reduce the overdue position (O'Riain, Curry and Harth,
2012). Clariton is having high amount of debtors collection period up to 90 days which has to be
reduced for increasing the liquidity in the business.

3.2 Unit cost and pricing
Cost per unit
Particulars Amount
Fixed expenses £65000
Variable expenses £32000
Total expenses or cost £97000
Output volume 970 units
Cost per unit £100
Margin of profit in percentage 23.00%
Selling price per unit £123
From the above table, the calculation which is involved in identifying the unit cost and
pricing strategies are been stated for the company. Clariton is having a fixed expenses of amount
£65000 which is due to many expenditures involved in it like the rent, electricity bills etc.
moreover, there are large number of variable expenses incorporated with the company such as
cost of raw materials, packing cost etc. From the analysis, the selling price of mentioned entity
per unit is fixed at £123. This depicts that organisation has more fixed expenses (Baranov,
2015). To meet this, the firm makes its margin for profit at 23% over 970 units.
3.3 Analysis of investments using investment appraisal techniques
1st investment
2nd
investment
Cumulati
ve values
Cumulativ
e values DF
PV
(1st)
PV
(2nd)
Initial
capital
cost -8.6 -4.4 -8.6 -4.4 1 -8.6 -4.4
1 1.6 0.8 -7 -3.6
0.877
2
1.403
52
0.7017
6
2 2.8 1.4 2.8 -2.2
0.769
5
2.154
6 1.0773

3 3.4 2 6.2 -0.2 0.675 2.295 1.35
4 3.6 2.4 3.6 2.2
0.592
1
2.131
56
1.4210
4
5 4 2.3 7.6 4.5
0.519
4
2.077
6
1.1946
2
6 4.2 2.6 4.2 7.1
0.455
6
1.913
52
1.1845
6
Payback
period
3+(0.8m/3.6m)
=3.22
3+(0.2m/
2.4m) = 3.08 NPV
3.375
8
2.5292
8
ARR
1st = (£19.6m/6)/£8.6*100 = 37.98%
2nd = (11.5/6)/4.4*100 = 43.56%
According to the NPV analysis, both the project 1 and 2 are generating the NPV of 3.38
and 2.53 respectively. Further, the Project 2 is to be selected as the initial outflow is low ikn
comparison to the other one and also its ARR and Payback period is better than Investment 1.
Project 2 should be selected as it is having less initial investment and the average rate of return
on the project is better than the other. Further payback period is less which implies that initial
cost will be recovered earlier.
TASK 4
4.1 Key components of financial statements
Income statement- it help the company to determine with the income and expenditure of the
company for a particular period of time. Further, it will assist in getting the actual picture which
determines with the net profit or losses beard by the organization (Samiksha, 2016). Thus, it is a
greater assistance for the company to make the proper decisions for achieving the objectives.
Cash flow statement- It highly assist in monitoring with the cash which is either inflowing or
out flowing from the business. This helps in persuasion of several sources of cash which
ultimately help in attaining greater heights in the market. Moreover, it will be a greater aid for
the managers in developing with various strategies that are needed for maintaining business
operations.

Balance sheet- It shows with the available assets and liabilities of the company for a financial
year. It is mainly developed on annual basis which help in determining with the actual position
of the company.
4.2 Comparison between financial statements adopted by two firms
Basis Clariton Antique La Consignment
Type It is been owned on the
partnership basis which means
that all the profits earned are
been distributed among all the
partners involved in it.
It is been established by a
single person which means that
it is a proprietorship firm.
There main motive is to earn
with maximum profits.
Financial statements It is having four partners
involved in the firm (Brignall
and Modell, 2011). They
individually are responsible for
maintaining the partner capital
amount which will assist in
monitoring there share in
revenue earned.
The actual position of the
organization is been monitored
by the owner himself. This is
done by evaluating the income
statement.
Determining with the Norms
and policies
In this, the role of individual
partner is either equally or on
the basis of invested money in
the establishment of the
organization.
The owner need to comply
with large number of
formalities that will assist in
monitoring with the amount of
tax as well as revenues.
4.3 Financial ratios of Clariton company
Calculation of liquidity ratios
Liquidity ratios Calculations
2015 2014