...INTRODUCTION Finance is the lifeblood of business concern, because it is interlinked with all activities performed by the business concern. In a human body, if blood circulation is not proper, body function will stop. Similarly, if the finance not being properly arranged, the business system will stop. Arrangement of the required finance to each department of business concern is highly a complex one and it needs careful decision. Quantum of finance may be depending upon the nature and situation of the business concern. But, the requirement of the finance may be broadly classified into two parts: Long-term Financial Requirements or Fixed Capital Requirement Financial requirement of the business differs from firm to firm and the nature of the requirements on the basis of terms or period of financial requirement, it may be long term and short-term financial requirements. Long-term financial requirement means the finance needed to acquire land and building for business concern, purchase of plant and machinery and other fixed expenditure. Longterm financial requirement is also called as fixed capital requirements. Fixed capital is the capital, which is used to purchase the fixed assets of the firms such as land and building, furniture and fittings, plant and machinery, etc. Hence, it is also called a capital expenditure. Short-term Financial Requirements or Working Capital Requirement Apart from the capital expenditure of the firms, the firms should need certain expenditure ...
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...Sources of Finance Finance is essential for a business’s operation, development and Expansion. Finance is the core limiting factor for most businesses and Therefore it is crucial for businesses to manage their financial resources Properly. Finance is available to a business from a variety of sources both Internal and external. It is also crucial for businesses to choose the most Appropriate source of finance for its several needs as different sources Have its own benefits and costs. Internal sources of finance Internal sources of finance are the funds readily available within the organisation. Internal sources of finance consist of: Retained profits • Working capital • Sale of fixed assets Retained profits Retained profits are the undistributed profits of a company. Not all the profits made by a company are distributed as dividends to its shareholders. The remainder of the profits after all payments are made for a trading year is known as retained profits. This remainder of finance is saved by the business as a back-up in times of financial needs and maybe used later for a company’s development or expansion. Retained profits are a very valuable no-cost source of finance. 2.1.3 Working capital Working capital refers to the sum of money that a business uses for its daily activities. Working capital is the difference of current assets and current liabilities (i.e. Working capital = Current assets – Current liabilities). Proper working capital...
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...Question: IDENTIFY THE SOURCES OF FINANCE AVAILABLE TO A BUSINESS Answer: There are a number of ways of raising finance for a business. The type of finance chosen depends on the nature of the business. Large organisations are able to use a wider variety of finance sources than are smaller ones. Finance is not just needed when starting a new business, but you may be required to seek further finance even if you’re business is well established i-e further expansion, R&D, new product launch . No matter what business you are in, you will always have to ensure your business is adequately financed; there are two major forms 1. Internal Finance 2. External Finance Internal Finance Internal finance is the finance that is raised from within the company. The businessman will have to either invest his own capital ‘owner s capital’ or retain profits they have earned .This is cost effective source of getting capital and very important part of every organization but has its own limitations .Therefore the business organizations have to use the other internal sources of finance in order to meet their needs .following are examples of internal sources of finance I. A tight credit control II. Delay payments to creditors III. Reduces inventory level External Finance There are different external sources from which businessmen can get finance, these can be; Banks, financial institutions, Capital markets, money lenders, producers, manufacturers, foreign financial...
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...Research Paper No. 2009/03 Source of Finance, Growth and Firm Size – Evidence from China Jun Du1 and Sourafel Girma2 January 2009 Abstract Using a comprehensive firm-level dataset spanning the period 1998-2005, this paper provides a thorough investigation of the relationship between firm size, total factor productivity growth and financial structure in China, controlling for the endogeneity of the latter. Generally, it finds financing source matters for firms of different size, and the extent to which financing source matters for firm growth is greater for small firms than big firms. Self-raised finance appears to be most effective in promoting small firms to grow, and bank loan seems to be more supportive to big firms. The relationship between size, finance and growth also depends on ownership. In addition, there exist strong complementarities between formal and informal finance, as well as between indigenous and foreign finance. Keywords: China, finance, firm size, growth JEL classification: O5, G2, L11, L25, O1 Copyright © UNU-WIDER 2009 1 Aston University, UK, e-mail: j.du@aston.ac.uk; 2 Nottingham University Business School, UK, e-mail: Sourafel.Girma@nottingham.ac.uk This study has been prepared within the UNU-WIDER project on Southern Engines of Global Growth, co-directed by Amelia U. Santos-Paulino and Guanghua Wan. UNU-WIDER gratefully acknowledges the financial contributions to the research programme by the governments of Denmark (Royal Ministry of Foreign...
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...I have been asked to identify the source of finance which are available for any business while I have also to assess the impact of those sources upon the business entity. Late, I have to evaluate and recommend the appropriate sources of finance for the chosen enterprise The Success Ltd. Finance is a life blood of an organization. To commence the business or to expand it, finance is needed. Therefore, there are the sources of finance from where we can borrow money for the expansion or modernization of the business and these sources of finance have the cost to it. There are a number of ways of raising finance for a business. The type of finance chosen depends on the nature of the business. Large organization are able to use a wider variety of finance sources than are smaller ones. Savings are an obvious way of putting money into a business. A small business can also borrow from families and friends. In contrast, companies raise finance by issuing shares. Large companies often have thousands of different shareholders. Sources of finance Uses of finance Shareholders Finance to set up and expand a business Bank Loans to finance capital projects. Overdrafts to manage cash flow Creditors Short term credit until goods have been sold To gain extra finance, a business can take out a loan from a bank or other or other financial institution. A loan is a sum of money lent for a given period...
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...Sources of finance for entrepreneur Entrepreneurs as pioneering play an important role in achieving business success in today twenty-one century. They serve as agents of change provide creative, innovative ideas for business enterprises and help business grow and become profitable. There are two types of entrepreneurs which are business entrepreneur and social entrepreneur. Business entrepreneur is driven by a profit motive while social entrepreneur is driven by a mission to fill the gap left of the market and public sector. This essay will typically focus on business entrepreneur.（Frederick, H.H&D.F.Kurakto.2010）.The most important part for enterprise doing business is financing .Without money or capital which is extremely hard for entrepreneur starting up a business. However there are many sources of financing for entrepreneur. The essay will be illustrated from some sources of finance via an existing company. Sharetea Australia Pty is a company that specialist in food and beverages. The company has four shops located in different district s in Sydney. As a proprietary company which meant the company is owned by an individual that has limited shares, around fifty employees work in the company. Anthony Mu is the manager of the company which has 10 years working experiences. In this essay, it is necessary to discuss how do Anthony Mu raise funds as an entrepreneur for starting his business, and any source of finance that he used to maintain his company. It said that...
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...CONTENTS PAGE Page Executive Summary.................................................................................................................................................i 1. Motor Vehicle............................................................................................................................................1 2.2 Type of Asset and cost...............................................................................................................................2 2.3 Vehicle purchase options...........................................................................................................................2 -Chattel mortgage.......................................................................................................................................2 -Leasing.......................................................................................................................................................2 -Venture capital..........................................................................................................................................2 2. Soap............................................................................................................................................................3 2.1 Type of asset and cost................................................................................................................................3 2.2 Soap purchase...
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...Short term finance Hopefully you managed to get the right sources of short term finance in the drag and drop activity. Let us have a look in a bit more detail at each of the main types of short term finance. Bank Overdraft Most businesses have an account with a bank. The bank deals with all the deposits (money put into the account) and withdrawals (money taken out). Most banks know that businesses do not always receive money from sales straight away. If you run a sandwich bar in a local trading estate then you Sources of Finance Managing Financial Resources & Decisions might get money straight away when you sell your sandwiches. If you are a business selling electrical equipment to an electrical retailer then you may not get paid straight away when you deliver your goods. When differences occur in the money a business receives from sales (its revenue or turnover) and the money it has to pay out on labour, machinery, equipment, distribution and so on (its costs) the firm can face difficulties. The money flowing into a business from sales and the amount it spends on costs that go out of the business is called its cash flow. Cash inflows to a business Cash outflows from a business (Revenue from sales, loans, interest, sales of assets etc (Payment for raw materials, stock, labour, insurance, rent, rates etc.) A business might need to pay a bill on the 28th November for £1,500 but not have enough money in its account to pay the bill. It might know that it is due to receive...
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...Sources of Finance and Their Advantages & Disadvantages Rob Jennings http://smallbusiness.chron.com/sources-finance-advantages-disadvantages-14407.html Personal Savings and Assets Your personal savings and other assets make a great source of capital. Because you already have them, acquisition costs are minimal, and you won't be paying interest on a bank loan or sharing returns with investors. The drawbacks, of course, are that if you plow your personal savings into a business venture, you could lose it all. Some assets, such as retirement accounts, are safe from creditors and bankruptcy courts; placing such assets at risk may not be good for you, especially if you're approaching retirement age and are running out of time to rebuild depleted accounts. Investors Corralling a group of investors can help you raise start up or expansion capital for your business without placing all of the risk of loss on you alone. These investors may be active partners in the business, or they may be silent investors who simply provide capital and wait for their returns. The disadvantage to bringing in investors is that you do give up a certain element of control over the company. Even if you retain a majority interest, you'll need to keep your investors happy. Additionally, if you share the risk with others, you'll also have to share the profits. Bank Loans William Thayer http://smallbusiness.chron.com/advantages-amp-disadvantages-bank-loans-47377.html Private Banks can be another...
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...External Source of Finance | Advantages | Disadvantages | Bank LoanBorrowing money from the bank at an agreed interest rate and then repaid in a fixed period of time. | * There is a set amount of money that is repayable, is paid over a certain period of time. * Larger amounts of money can be borrowed by the company in this process. | * It is more likely to have a higher interest rate which can change monthly. * Banks are less likely to offer a loan to a start-up business, as there is no credit history for the business if they are applying for the first time, and they do not want to take a risk by offering a loan if they can’t pay it back. | Trade CreditWhen the business buys the items needed first and pays the value of the item back later on in the year, usually within 90 days. | * No interest has to be paid on the product if the payment of the item has been completed in the agreed timescale. | * Have to manage the cash flow more carefully during the number of days before the payment has to be made, so that there is enough money to pay off the debt. | Share issuesPutting a part of the business on the Stock Exchange which is purchased by members of the public, who then own a part of the business. | * Company is not charged any interest on the shares that are sold. * The investment made by the shareholders does not have to be repaid to them by the business. | * Shareholders will expect to receive a share of the profits made by the business through dividends...
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...Source of finance for public sector organistaion 1.direct changes of services Postal services such as selling stamps,savings and traavel insurance 2.government govt school and hospitals get financial support from the central govt funded from the tax revenue of the govt 3.donations Sources of finance for business strategy 1.purpose of finance Short term (improving working capital /day today running)-overdraft Longer term (buying expensive equipments or replacement of fixed assets –hire purchases 2.costs-consider not only purchase cost but also associated cost such as administative charges service and maintanance charges and short and long term consideration of interest rates.managers also have to bear in mind the opportunity cost of their final choice 3.amount required Large amount:issue shares,secured loans firm financial institution Small amount:overdraft 4.time Long period (for purchase of new buildings) -mortgages as debentures Short term :trade credit 5.stages and size of the firm A well known and large mnc will find it much easier to raise finance from a wider range of sources than a sole trader.in addition large organization are able to obtain finance cheaper due to financial economies of scale 6.financial situation of a firm poor cashflow makes it difficult for the firm to raise finance as they represent a higher risk to investor and landers.landers will assess their gearing (longterm external borrowing as a percentage to capital employed)of...
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...Sources of Business Finance ----------------------- |Finance method |Explanation |Benefits |Drawbacks | |Owner’s Funds |Business owners often have to use their|Savings are a good source of finance |There is always risk involved; the owner could | | |own personal savings to start a |because no interest has to be paid |lose his funds if the business is not successful. | | |business, particularly if they are a |whilst the money is being used. | | | |new sole trader. | |The owner may not have sufficient funds to start | | | |Business remains in full control of the|up the business. | | |Banks may no be willing to take the |owner. | | | |risk and invest in them. | | | |Retained Profits |This is the money retained in the |Using retained...
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...SOURCES OF FINANCE Matching the appropriate source of finance to a situation This is a paired exercise. The aim is to match the situation to the most appropriate source of finance. CASE STUDIES NEW MINIMARKET Roy Bhuvnesh has been made redundant after 20 years with a major organisation and has received a lump sum redundancy payment of £70,000. He is planning to set up a new minimarket and has identified suitable premises valued at £180,000 in Green Lane. BUYING A NEW FREEZER CABINET A small newsagent in Green Lane has decided to purchase a new freezer cabinet and oven/roasting unit to provide hot meals for local workers and for pupils at Northwood School which serves the surrounding area. The cost of the units is £8,500. MOBILE CAR VALET SERVICE You have just passed your driving test and along with a friend are setting a business to offer a mobile car valet service. This would involve them travelling to people’s homes and washing and internally cleaning customer cars. They are hoping to attract private customers and local garages who sell second hand cars. RE-LOCATING TO SWANSEA Sentinel Industries plc are planning on moving a major part of its production facility to Swansea. It has identified a site near a former chalk pit that is now not used. The estimated cost of the facility is £10 million. BUYING NEW EQUIPMENT Lucas Engineering Ltd with an annual turnover of £3.5 million has decided to install new machinery to help improve its productivity...
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...as accidents or natural disasters. The difficulties in obtaining these funds constitute one of the major challenges in running a business. The two major sources of business finance are internal and external funding. This paper examines the differences between internal and external sources of finance. It will also examine the advantages and disadvantages of each source. Internal sources of Finance Internal source of finance refers to funding generated within the business as opposed to financing obtained from outside sources. Internal funding can be obtained from retained earnings, sale of assets, depreciation, reduction or control of capital. Retained earnings: These are profits left over after a firm has settled its debts and paid out dividends to shareholders. The leftover funds can then be ploughed back into the business. The advantage of this method is that there is no borrowing cost associated with it. The firm has total control over the decision to use the funds and is not subjected to any vetting by lenders. The disadvantage of using retained profits as a source of funding is that the company may not have cash readily available in times of urgent need (Timimi, 2010). Sale of asset: The sale of assets is another source of internal financing. A business may choose to sell some of its assets to generate cash to finance its business needs. These assets could be in the form of patents, real estate, art work, equipment, or machinery. Although this strategy may work in...
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...P4 Sources of Finance INTERNAL An internal source of finance means to get money from within the business. Owners Savings The owners’ savings is the potential owners’ own money which is normally used when starting up a business. This can be a good source of finance especially for sole traders because since the owner has been saving up for most of their life, they would have enough money to invest in the business and they don’t have to worry about paying any employees or shareholders. However, there can be a disadvantage for sole traders when using this source of finance because they must be careful when investing money as they must know their limits in case they don’t have enough money to support themselves. PLC’s (Public Limited Company) would also use this source of finance through their shareholders who each invest money into the business. There can be an advantage for shareholders who use this source of finance when investing money into the business because if the business gains a profit, the shareholders will gain a dividend which means they will each get a share of the profits they make. However, there can also be a disadvantage because if the business makes a loss, the shareholders will lose the money they invested. Capital from profits Capital from profits refers to the money left over after most of the profits that have been earned have been shared with each of the shareholders. There are advantages of using this source of finance because the capital that is left...
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