Financial Decision Making

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Financial Information Pack

Contents

Sources of FinancePage 2
IntroductionPage 2
Major Sources of FinancePage 2
Internal SourcesPage 2
External SourcesPage 3

Business Projects and AssetsPage 7
IntroductionPage 7
AssetsPage 7
Types of ProjectsPage 7

Implications of Finance and LiabilitiesPage 11
IntroductionPage 11
What is Liability?Page 11
Implications and Costs of Financial ResourcesPage 11

The Working Capital CyclePage 16
IntroductionPage 16
Capital and Inner CyclesPage 16
Working Capital CyclePage 16

Financial Information and its ImportancePage 19
IntroductionPage 19
What is Finance?Page 19
Financial Importance and its Assistance in Decision MakingPage 19

Sources of Finance

Introduction

“Funding is the financial support provided to realise certain projects”

Whether you are a new business, or already established and looking for additional finance for new projects, this information pack will assist you in the decision making process with useful information that will help you within your financial considerations. This pack will contain information relating to the sources of finance that are available to a business, how these sources are utilised with business projects, decision making and liabilities, and also how the correct use of the working capital cycle can assist in success.

Major Sources of Finance

When considering expansion or starting up a new business, ensuring that you have enough knowledge on the different types of finance is vital, the major sources of finance will be listed with an explanation of these types, their advantages and disadvantages.

There are two different sources of business which would need considering which are the internal and external sources of finance, depending upon which approach is taken will depend upon the situation of the independent organisation.

Internal Sources
This is the creation of finance through internal means, therefore most of these sources will relate more to already established businesses, however it is important for new businesses to be aware of these sources, as they will always be a useful method of reference should a growing business ever need to think about the funds available to them at any time. The different types of finance that are internal are listed below.

Retained Profit/Earnings
Used for both new starters (as retained earnings) and new projects this form of finance is going to be one of the best methods of finance, especially as there is no interest or additional charges relating to this form of finance. Profits are relating to current firms earnings being greater then that of their expenditure. Retained earnings can come from sources such as savings, a previous employment, in examples of redundancy where a lump sum is paid out, and others.

Sale/Lease of Assets
This would be the sale of a businesses fixed assets i.e. machinery, vehicles, fixtures etc.… to provide what is normally described as, as short term periods of cash, although this can also be used for the long term during occasions when a firm sells more expensive assets such as property or land. When leasing assets it is important to understand that the firm will always own the item and that it is provided to another firm/individual on the basis that it shall be returned, and whilst possession of the asset is with the firm/individual a leasing fee will be provided bringing additional funds to the business.

Reducing Stocks
This is the sale of current stock. This can relate to the selling of raw materials, the part-finished, or completed product. With an established business the sale of a completed product should be a continuous cycle and it is the driving force where businesses create its revenues and profits (this is known as the working capital cycle). In times of turmoil within a...
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