FINANCE

Managing Financial Resources and Decisions

Managing Financial Resources and Decisions

Part 1: Pass Criteria

Alternative Sources of Finance Available to the Business

The business that is under consideration to be set up is an educational institution, i.e. a higher education school. Like, every business, this business demands investment that can be financed using different sources available to the businesses. One of the most important aspects of any new business' successful establishment is its adoption of appropriate financing sources that enables the business to keep consistent flow of finance required to meet the business demands. There are several sources available to the business for financing needs, including internal and external sources as well as grants (Fleming & McKinstry, 1991, p.138). Among all of these sources there are certain most significant sources of finance that are available to the business. These financing sources are stated as follows:

Venture Capital Financing: Financing through venture capital enables the transformation of the idea into a newly start up business. Venture capital source of financing is basically a private equity financing that venture capitalists do in order to finance a new business at the cost of defined ownership in the new business (Siddaiah, 2011, p.326).

Debt Financing: a new business can be formed by using the debt financing available by different financial institutions, particularly banks. Debt financing provides an easy and considerable cheap access to financial support (Needham, 1999, p.99-108).

Personal Savings & Informal Loans: a new business can use personal savings or informal loans as a seed capital for setting up the company.

Regional Development Agencies: Such agencies offer a reliable network of financing sources for new business development. They facilitate the new business by funding and support at a regional scale through stimulating the business development strategy (Needham, 1999, p.99-108).

Grants & Loans from Local Authorities: A new business may seek loans or grants from local authorities, on a local scale, for financing its business operations. Implications of Available Sources of Finance

Number financial sources are available to a new business from which it can seek financial support and assistance (ass discussed above). But each of these financing sources may have particular implications on the newly established business and its operations, such as effects of taxation, ownership, and mechanism of control.

Effects of Taxation: different sources of finance provide different tax implications that depend on the income as well as preference of such sources. For example, in case of venture capital financing, there is more focus on capital gains and thereby they may put emphasis on capital structure that provides maximum after tax profit. Where, an effective tax shield is offered to a new business in case of debt financing, borrowing from banking institutions (Pearsoned, n.d., p. 80).

Ownership: different concerns of ownership are implied from different sources of finance. For instance, when a newly set-up company fails to pay-off the due amount of informal loans, it may urge a company to provide a particular portion of business ownership to the creditor (Barclays, 2009, ...