Managing Financial Resources

Only available on StudyMode
  • Download(s) : 579
  • Published : September 5, 2008
Open Document
Text Preview
Table of Contents

Choosing a Financial Source
1. Sources of Finance……………………………………………………Page 3 2. Term Length of Funding……………………………………………...Page 5 3. Venture Capital Sources……………………………………………....Page 5

Decision Making
1. Team Building………………………………………………………...Page 6 2. Cost of Finance………………………………………………………..Page 7 3. Flow of Cash…………………………………………………………..Page 8 4. Balance Sheet………………………………………………………….Page 9

Financial Performance
1. Financial Statements…………………………………………………..Page 11 2. Balance Sheet and Accounting Ratios………………………………...Page 12 3. Comparisons between financial statements…………………………...Page 15

Financial Analysis
1. Cash Flow Statement………………………………………………….Page 18 2. Cash Flow with Inflation……………………………………………...Page 19 3. Investment and project appraisal……………………………………...Page 20

Bibliography…………………………………………………………….Page 21

Choosing a Financial Source

1. Sources of Finance

As every business needs to draw on sources of finance David too need to obtain adequate funds. These supply the business with the funds to carry out its actions. There are a variety of sources of finance. Some of the more important ones include:

Personal Investment and friends/family
Loans and Overdraft
Share Capital
Venture Capital
Retained Earnings

Personal Investment and friends/family
When commencing a new business, very often the initial funds invested will come from the individual’s personal savings. The tendency of business start-ups to approach relatives and friends to help finance the venture is also a widespread practice. David can start from investing the finances available to him on person or borrowed from friends/ family. This can be the balance of his bank account or the use of his assets. The advantage will be the trust his gaining within the other financial providers by risking his own money.

Loans and Overdraft

Banks provide money to build money. Decisions on interest are the most important. Banks are very active in this market and seek out businesses to which they can lend money. Of the two methods of giving you finance, especially in small and start-up situations, always prefer to give an overdraft or extend the current limit rather than make a formal loan. Overdrafts are a very flexible form of finance which, with a healthy income in your business, can be paid off more quickly than a formal loan.

Loan on the other hand is an amount of money borrowed for a set period within an arranged settlement plan. The repayment amount will depend on the size and duration of the loan and the rate of interest.

Bank loan also will be a good idea for David as it is the option for fixed assets cost. But on the other hand he has to think about the disadvantage such as paying the interest for funds he is actually not using, providing a form of security and cashflow problems occurs with the regular payments.

Share Capital

Another way of funding the business is to collect investment in the form of shares while setting up a Limited Company. This could be an excellent idea as it is the most important source of long-term finance for a limited company. Share Capital is raised through the sale of shares to individuals or institutions, who in return for their investment receive interest in the form of a payment, which represents a share of the profits made by the business. The two most common forms of shares are

Ordinary Shares: These shares give the right the holders to the remaining divisible profits after earlier interests. In case of liquidation the share holders are permitted to recover their money by selling the left over resources of the company.

Preference Shares: These shares carry a fixed rate of payment, the holders of which, subject to the conditions of issue, have a prior claim to any company profits available for allocation. Preference share holders may also have an earlier claim to the repayment of...
tracking img