Business Organization Structures and Financial Sources

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INTRODUCTION TO BUSINESS

Table of Contents
Part A...............................................................................................................................................2
1. Introduction..................................................................................................................................3
2. Advantages of selected company.................................................................................................4
3. Disadvantages of selected company............................................................................................4
4. Conclusion...................................................................................................................................5
Part B...............................................................................................................................................6
1. Introduction..................................................................................................................................6
1.1 Legal requirement..................................................................................................................7
1.2. Provide information..............................................................................................................7
1.3. People who want to invest in business.................................................................................7
2. What sources of finance are available for business?..................................................................7
2.1. Internal......................................................................................................................................9
2.1.1. Personal savings.................................................................................................................9
2.1.2. Friends and family.............................................................................................................9
2.1.3. Credit cards........................................................................................................................9
2.2. External...................................................................................................................................10
2.2.1. Bank loans.......................................................................................................................10
2.2.2. Business relationship financing.......................................................................................10
2.2.3. Venture capitalists...........................................................................................................10
2.2.4. Business angels................................................................................................................10
2.2.5. Share capital.....................................................................................................................11
3. Conclusion.................................................................................................................................11
References......................................................................................................................................12
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Part A
(a) Taking a limited company of your choice discuss its nature, advantages and
disadvantages as a business organisation. Name and describe, with examples, other forms
of business organisation.25 marks
Tesco Plc. or commonly known as Tesco is a British multinational retail organisation. It is a
private Limited liability company. There are various advantages and disadvantages of Tesco Plc.,
which are the following:
Advantages:
 In the customer service, excellence in the retail industry and complete shopping
experience Tesco have won several awards
 Tesco Plc. provides best products to its customers, which helps to bring a huge customer
base.
 The IT department of the Tesco Plc. is very strong which helps the company to make
advanced market strategy, meet the needs of the customers and many more.
Disadvantages:
 Margins of Tesco Plc. is very low
 Market penetration, level of productivity and the market saturation are low
 Competition of Tesco Plc. is disruptive in nature
Tesco Plc. is a private Limited liability company. There are many more forms of business, which
are:
 Sole proprietorships: The term “sole” refers to single, and “proprietorships” means
ownership. So the meaning of the sole proprietorships means a person who operates and
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controls all the business functions. There are some characteristics of sole proprietorships
that includes single ownership, one-to-one relationship, low capital investment,
management by own, maintains profit and loss scenario and many more.
 Corporations: Structure of corporations is relatively complex than other forms of
business. In this particular case, the total income divided among the shareholders in the
form of dividends (Wheelen et al., 2017). As a result, the company manages all the
business responsibilities. There are various benefits of the corporations such as no
corporate tax is needed, quick decision-making is possible etc. On the other hand,
disadvantages of corporations include conflicts of scope, only a limited number of
resources can be increases etc. Corporations are again divided into two parts namely
Private and Public company.
 Partnerships: Partnership in a business means running a business with more than one
person (Sanzo et al., 2015). Maximum numbers of people in a partnership business lies
between 2 to 20. There are various advantages of partnerships like quick formation, huge
resources and no tax.
 LLC or Limited Liability Company: Limited Liability Company is defined as the
formation of business in which the shareholders are concerned about the invested amount
(Fong and Li, 2017). It is classified into two divisions namely, public and private limited
companies. Tesco Plc. comes under this section.
In the case of Public Ltd., organisations, there must be at least 2 shareholders,
abbreviation “Plc.” must be added to the name of the company.
In the case of Private Ltd. Organisations, at least 1 stakeholder is needed and abbreviation
“ltd.” must be added to the name of the company.
1. Introduction
Tesco Plc. is one of the biggest retail sectors in the UK. Headquarter of Tesco Plc. is in London.
Brand value of Tesco across the globe is around 9.08bn USD. Moreover, Tesco Plc. also operate
manage their online transactions and sales which is around 4.2bn USD (Tesco plc, 2019). There
are more than 6500+ store around the world with approximately 4, 60,000 employees. Moreover,
it is a private Limited liability company.
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2. Advantages of selected company
Advantages of Tesco Plc:
 The investors have restricted liability, which refer that they can lose the cash that are
invested by them in Tesco if it does not work then, they cannot be compelled to sell their
own possessions.
 They can easily able to sell their own shares so that they can collect more cash from
different kinds of business.
 Tesco Plc. gets inputs from the investors.
3. Disadvantages of selected company
Disadvantages of Tesco Plc:
 Tesco Plc. has to publish their own accounts so that the competitors can able to analyze
their position.
 Tesco Plc. needs to inform all the workers who are working in a city within a short span
regarding their productivity and profits; it makes only the short-term decisions.
 Shareholders of Tesco Plc. have different plans in order to make huge profits over both
the ethical as well as social objectives.
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4. Conclusion
From the above study, it can be concluded that, Tesco Plc. is a British multinational private
Limited liability organisation. There are various advantages and disadvantages of the
organisation. Apart from that, the study also described different forms of business organizations
like sole trader, limited liability Company private, limited liability company public and
partnership and their functions.
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Part B
(b) Explain the purpose of financial information produced by businesses and the role that
finance plays in such a business. What sources of finance are available to a business?
The term financial information refers to the important information regarding all the financial
operations, flow of cash and the present financial status of the company (Pandey, 2015). This
information helps to take necessary decisions regarding resource allocations. In other words,
financial information or statement can defined as the formal database that stores and analyzes all
the activities that are associated with the finance. There are many more uses of financial
information includes credit related decisions, all the tax related decisions, decisions associated
with the investment and many more. There are various roles and functions of finance in business,
which are as follows:
 Business development and facilitating the business
 Purchasing of both the tangible and intangible assets
 Helps to build, grow and expand the business
There are three types of sources of finance available to a business that are based on time, based
on source of generation and depend on control, management and ownership.
1. Introduction
The term Finance is a broad term. It is associated with the debit, baking, credit, market capital,
investment and many more (Härdle et al., 2017). Importance of finance includes managing the
initial capital, accomplishing all the expenses that are associated with the management
operations, proper creation of asset, launching newly arrived product in the market, maintain the
business cycle and many more.
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1.1 Legal requirement
Legal requirements are associated with the finance that includes tax requirements (i.e. Value
Added Tax, Corporation Tax, Capital Gains, Income Tax etc.), insolvency, bankruptcy, recovery
of debt and all other legal advices that are associated with the business (Picciotto, 2017).
1.2. Provide information
There are many more importance of finance, which includes asset management, acquisition and
management administration. Finance is the most important decision making tool, it helps the
business organisation to take necessary decisions like investment related decisions, split
decisions and most importantly financing decisions.
1.3. People who want to invest in business
Business investors can be defined as a collection of people who give money to the business and
want to operate the business (Appel et al., 2016). If the investors can see high return, good
operational management team, proper and well-developed business plan, good exit strategy then
only they will invest in business.
2. What sources of finance are available for business?
The term finance can be defined as the money management that incorporates investment,
lending, saving, borrowing and predicting. Generally, there are three basic types of finances such
as personal finance, corporate finance and government finance. Finance sources for business
refers to the debentures, investment capital, venture funding and many more. There are different
sources of finance that depends on the following parameters:
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1. Based on Time-period: Financing sources of a business are categorized on the different
time-period and for that one of the most essential components is money. Based on the
time-period the sources are divided into three different sectors are:
 Short term finance sources: Short term sources includes creditors, discounts in bills,
money received by the organisation from the consumers, fixed deposit for less than one
year, short term bank loans from banks, services related to the factoring and many more
(Henager and Cude, 2016).
 Medium term finance sources: Medium term source of finance includes medium loans
from the government and commercial banks, bonds, lease finance, preferred shares etc.
 Long term finance sources: Share equity, venture funding, issues related to Euro, long-
term loans from the banks, FCL (Foreign Currency Loans) and many more.
2. Generation sources: Based on the generation, financial sources are categorized into two
segments include:
 External sources: External generation sources includes market shares, deposit of the
public, personal loans, debentures etc.
 Internal sources: Internal generation sources include asset sales, profits and the working
capitals.
3. Control, management and ownership: Control, management and ownership are the
three most important aspects that are associated with the finance during selection of
financial sources. Based on these three parameters the financial sources are categorized
into two sub-parts are:
 Borrowed capital: Borrowed capitals deals with the institutions that are financial,
debentures in the case of normal public and all the commercial banks.
 Owned capital: Owned capital deals with the retail earnings, debentures that are
convertible, private equity etc.
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2.1. Internal
Funds are required for all the business organisations in order to accomplish their various types of
needs. Internal sources come under generation sources.
2.1.1. Personal savings
The term personal savings can be defined as the cash of an individual, instead of an association,
keeps in a record in a bank or any finance association
2.1.2. Friends and family
There are several benefits of financing from family and friends. The advantages include:
 No security deposit needed in this case i.e. the process is comparatively flexible.
 No business plan needed, as the person already knows the financier.
 As the financier is known to the person personally so, the rate of interest is lower than the
commercial banks.
2.1.3. Credit cards
Credit cards help the individuals to buy any product, if they do not have enough cash. Various
advantages of credit cards are:
 Individuals get quick loan by using credit card
 They can easily able to carry balance
 If the user purchases something by using credit card then he/she needs to pay bill at the
end of the month along with interest.
 There are various advantages of credit cards like travel related rewards, warranties based
on product purchase.
 One of the biggest advantages is if the credit card holders do not buy anything then they
should not be responsible for the unauthorized purchase.
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2.2. External
The term external source of finance can be defines as the capability of the organisation to
perceive sufficient sources of financing, which helps in long-term economic accomplishment.
2.2.1. Bank loans
Bank loan is one of the most common terms of finance. Bank loans are basically simple and fast
way to achieve the need of fund and it is provided within the stipulated period of time.
2.2.2. Business relationship financing
The term business relationship in financing can be defined as the relationship between the
stakeholders and workers. If the organisation has a good relationship with the customers then it
helps to bring more customers. There are generally two types of business relationship are non-
account based and account based relationship.
2.2.3. Venture capitalists
Venture capitalists are also known as financial speculator. The role of the venture capitalists is to
provide capital that gives funding to the firms displaying high development potential in return for
the equity stake (Adams, 2018). There are several advantages of the venture capitalists are:
 Risk is very high
 Capital gains
2.2.4. Business angels
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The term business angles can define as the person who used to invest their money in the start-up
companies (White and Dumay, 2017). Sometimes, these types of people also play a role of
mentor who used to direct the start-up company.
2.2.5. Share capital
The term share capital can define as the money that is invested by the shareholders in the
organisation for the business growth of the organisation. It is the long-term financial source.
3. Conclusion
The present study highlighted all the purposes business financial information and the role of
finance in a business. Apart from that, the study also highlighted different legal requirements,
about the investors, internal and external sources of finance, which includes personal savings,
bank loans, friends and family. In addition, it also described the functions of credit cards and the
business investors.
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