MANAGING FINANCIAL

Managing Financial



Managing Financial Resources and Decisions

Introduction

The main objective of Managing financial resources and Decisions making is to understand the sources and availability of finance for businesses and skills for making effective financial decision making on the available information. In this essay, the focus would be on evaluating different sources of finance and how they use by companies and most important how company manage their cost while making budget, costing and pricing decisions.

Requirement 1: Sources of Finance

1.1 Why business needs finance and what are the available sources of finance to a business

The driving force behind every lucrative venture is finance. Business need capital to funds their operation and to produce cash flows and revenues. Since each company cannot access to sufficient cash to finance their entire business, there are different options of funding which make easy for business to further proceed with their operations and also that they can choose financing options according to their business needs. Without finance, business cannot meet their needs and in order to grow and expand this demand for more money and also to meet business day to day requirements, such as Burberry has been using different sources of finance to their different operation (level of achievement, 2000, pp. 1-4).

New Businesses or start-up have two options to finance their operation and these are internal sources of fund and external sources of fund i.e. equity and debt, while for existing companies, they can raise money using mixture of these two funds.

Internal Sources of Fund: This fund source is usually self-financing i.e. funds coming from business owners or partners. The following are the options through which fund can be raised within companies.

Personal sources: This is usually for start-up companies in order to meet their initially requirement. Sometime, when existing companies experience huge financial crisis, owners and partners funds money in the company.

Retained profits: This is cash that is produced by the company in excess of the target revenue i.e. undistributed revenue. This source is utilized by the company for expansion purpose or other profitable projects.

Sale of Fixed Assets: Sale of fixed asset takes place when company need to purchase new equipment and does not have sufficient amount to purchase it. For this, they sale fixed asset and purchase new one, imputing lesser amount (Arundale, 2007, p, 113).

External Source of Funds: These are the sources of funds that are raised out-side the business premises. The following are the options through which external sources of funds can be obtained.

Issuance of shares (ordinary and preference): Company issue shares in order to raise fund from the public. These are part of ownership capital since investors have right in profit.

Issuance of Bond: company can issue bonds at fixed rate to raise funds from public over issues of shares.

Initial public offering: These are also part of Ownership Capital and they are issued when company for the first time issuing shares in public for certain project.

Loan: Loan can be obtained for longer, medium and short ...