MANAGING FINANCIAL RESOURCES

Managing Financial Resources and Decisions



Managing Financial Resources and Decisions

Task 1: Understand the sources of finance available to a business: Scenario: Mark's Bakery

1.1 Being Mark's Accountant identifies the various sources of finance available for the company

Finance is essential element for starting up a new business. As Mark wanted to start his new business as a limited company, the following are sources of finance through which company can raise finance for their business.

Own Financing: Using own money, this is long term source of finance.

Family and friends: Involving any friend or family member in business that will permit to get finance on favourable terms.

Banks: The most attractive finance that is available for new business is banks. This includes Business overdrafts which are short term finance and allow withdrawing extra amount from current account. Term loans are long term finance that allows new business to purchase equipment and other fixed assets in order to run their operations.

Grants: This is a financial assistance given by government, local authority, charitable trusts, corporate sponsors etc, when individual has strong business plan. This is very attractive and beneficial for new businesses.

Loans: Companies such as development agencies, enterprise could help business that look for loans, best example is National Enterprise Network.

Business Angels: There are few high net worth individuals that invest in high growth business. This person just not only offers finance, but also their skills, contacts and experience.

Leasing: This is a Short term source of finance that offers to acquire assets without paying full amount rather paying rental expense on monthly basis.

Hire Purchase: This is also short term finance and has same features as leasing except for purchasing opportunity end of duration.

The above mentions are the sources of finance that are available for new start-up. Each source of finance comprises of cost and different benefits. Hence, it is essential to evaluate each specific requirements of company and decide which finance is best and suitable for business (drhea.ie).

1.2 Assess and evaluate the implications of the different sources of finance on the business.

Each source of finance has different implications having unique features along with benefits and drawbacks.

Own Financing - An internal source of finance that will benefit owner with respect to profit i.e. entire profit will be with owner (p.100).

Family and friends: Company need to pay low or no interest rate on it and they are trustable and flexible. No requirement of approval process (pp.101).

Banks: Company would be obtaining loan on fixed rate and instalments would reduce huge amount burden. As far as bank overdraft is concern, it is very flexible and it has capacity of maintaining cash flow. It can be obtain easily and quickly and no cost associated when re-paid on stated time. Amount can be utilized in effective manner and revenue generate with such loan can be initial be used for repayments (p.107).

Grants: Grants implication is very effective and beneficial as it does not need to be paid back and there ...