A company can also gain finance from TRADE CREDIT and FACTORING.
Overdrafts, trade credit and factoring are different ways in which a business can increase the cash and working capital flowing. However they are not a good method of raising money for £200 000 of outdated machinery, for this a bank loan would be required. With a bank loan a business borrows a fixed amount of money from the bank and repays it in regular fixed instalments. However Fit - for - Life will need to be aware that INTEREST is charged on the money that is borrowed. The bank may also demand security on the loan. Meaning that Fit - for - Life will have to pledge some assets that the bank can sell if the business fails to repay the loan.
Fit - for - Life could also ask the City of London to issue them a DEBENTURE, which is a long-term loan.
A business can also overcome finance by retaining profit. This is the money that is received from selling profits that is put aside before the rest of the money is given to the shareholders. No interest or dividends have to be paid on retained profit as it is the business' own money. It also means that the business does not have to borrow money for investments.
Fit - for - Life may also face the constraint of staffing. If the company expands then new staff has to be recruited. The new staff may need training as they might not be familiar with the equipment. Old staff may also need to be trained, as they will need to learn the skills associated with new technology. All of the staff will need to learn about new health and safety procedures.
The buying team will also need to learn about new products available from suppliers.
Employing new staff and arranging training will cost money and time. Fit - for - Life will need to set up a training scheme rather than rely on schools and colleges as so many businesses do.
Size of premises may also be a constraint that businesses face. The buildings the companies own may not be big enough as it would have expanded. Fit - for - Life will have to consider building new shops to allocate all of their products within the store, they may also think of making a department within a store. Building new shops and expanding (on the whole) will cost money.
For the products to be made new equipment and technology may have to be introduced. To make better use of time and to gain the best quality in products a new line of technology will probably have to be installed. Fit - for - Life might consider using CAD and CAM technology, they will also need to use and make new shop fittings. Installing new equipment and technology will cost money o make or buy but it will also mean that staff will have to be trained in using them.
Fit - for - Life will also face a series of external constraints that can not be changed by them.
Firstly they will face competition from other sports companies, like JJB, JD and First Sport. In order for them to gain the most amount of customers they need to ensure that their prices are of reasonable price and are competitive, the staff are helpful and kind and that they offer the latest in designer goods.
Fit - for - Life and all other businesses have to comprise with Government Laws. There are a number of government laws that all businesses have to deal with they include: The Consumer Protection Act 1987, The Consume Credit Act 1974, The Health and Safety Work Act 1974, The Trade Descriptions Act 1968, The Companies Act 1985 &1989, Weights and Measures Act 1979, The Environmental Protection Act 1990 and The European Law.
The Consumer Protection Act:
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Ensures the consumers' right to protection against false or inaccurate trade descriptions, eg. it is illegal to alter the mileage on a car to get a better
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Makes it illegal to or offer goods to which a false trade description has been applied, eg. supplying a copy of an original, but describing it as the original will be committing an offence
- Protects against a false statement on providing a service for accommodation offered: eg. a holiday flat, described as is within 'walking distance' of the sea, cannot be miles away.
The Consumer Credit Act:
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Protects when borrowing money or buying on credit.
- Credit firms must:
- A) have a licence to give credit
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b) tell the customer the annual percentage rate of
- c) stop people under 18 years borrowing money or buying on credit
- d) give a customer signing at home seven days cooling-off period to change their mind
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e) restrict charges for mortgage offers not taken up
Health and Safety Work Act:
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Covers everyone at work: employers, employees, self-employed people, and manufacturers and of materials used at work.
- Employers with five or more employees must have a written safety policy.
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Two bodies are responsible for the standards of health and safety in Britain. The Health and Safety Commission (HSC) defines the standards and the Health and Safety Executive (HSE) enforces the policies.
In 1995 an HSE survey revealed that 2.5 million people in Britain reported suffering from illness, which is caused or made worse by their work.
Trade Descriptions Act:
- Requires businesses to give true descriptions of goods or services
The Companies Act:
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Private limited (Ltd) and Public limited (plc) companies are governed by an Act (law) of Parliament that regulates businesses to protect the directors and .
Depending on and size of a company, for example, its financial have to be audited annually.
Environmental Protection Act:
- To control pollution from fuel and power industries, oil refineries, chemical works paper pulp and fertiliser factories and waste disposal facilities.
- "Polluters pay" principle to minimise effect of pollution on the environment
- Local authorities are responsible for the atmospheric pollution in textile dyes
European Law:
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All the member states of the are subject to a large number of EU environmental laws.
Another constraint that Fit – for – Life will face is Government Taxation Policies. The government taxation policies include VAT, Income Tax, National Insurance and Corporation Tax.
VAT (Value Added Tax) is at 17.5% but was originally 12%. This tells us that there was an increase in VAT. Therefore VAT could increase at any point chosen by the government.
Income Tax is another tax charged by the government. The employer must deduct some of the employee’s pay to send to the Inland Revenue (the department responsible for collecting Income Tax).
For workers to receive state benefits, such as state retirement pension deductions from pay have to be given to the government.
These taxes can not be avoided and businesses would be very concerned over an increase in VAT. If VAT was to be increased people’s income goes down, meaning that the disposable income of people would also go down. Thus resulting in the public spending less money on luxury goods but the little money they have will be spent on essentials. The skiing sportswear industry can lose money as people will stop going on ski holidays and then they will have no need to buy ski clothes.
