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Finance and Cash Flow Assignment.

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Introduction

Finance and Cash Flow Assignment For the opening part of this assignment, I am going to be listing the various sources of finance available to Coulla Petrou for both possible business ventures i.e. in the likelihood that she decides to fund expansion on her own within her own premises as a sole trader, or in the event that she decides to take up her brother's offer and form a partnership with him. In the possibility of both case scenarios, I will have to consider the options available to both parties which in this case are Coulla and Andrew, and Coulla who is currently an existing sole trader. To find out which sources of finance are best suited to fund for expansion to both a sole trader and a partnership, I will crucially have to weigh out all the sources of finance that are open to both forms of business organisations. I will then list the advantages and disadvantages of the sources and finance and then put my knowledge to say which ones would be best suited. Only once after I have done that, will I then go onto evaluate each source of finance by assessing whether they are feasible enough to meet the requirements for the proposed venture plan which is to expand 'The Cutting Shop' by breaking them down into factors such as the time period involved, the cost of how much the expansion itself will cost and the period in which the loan has to be paid back. Task 1 The sources of finance that are available to Coulla Petrou to fund the expansion of her business both as a sole trader or as a partnership will come from two main areas. For example if she wants to raise finance, then it can be raised either internally which means that money is obtained from within the heart of the business or externally which is funds raised from out of the business. ...read more.

Middle

A negative factor about using a loan is that the finance house usually has assets secured to them from the business as a form of security and interest is charged which will add to the list of expenses of Coulla. Moving on, the business and the bank both know precisely what the repayments of the loan will be and how much is interest is payable and by when. This makes cash flow more predictable for both parties but for the business especially because they will have a good idea as to how much money to borrow is business wise before they go into the red. Commercial Mortgages are like bank loans except the time period as to when the cash has to be paid back is of a greater length and the sum of money is larger which is an advantage for Coulla as she can borrow enough money to fund the expansion of her business. A disadvantage of taking up a mortgage is that interest is charged which means that Coulla will be adding to her expenses even further. A Bank Overdraft is short term borrowing on bank current account. It is relatively cheap and for existing sole trading or partnership businesses, the Base Rate is somewhere between the region of 2.5% and 5%. This is an advantage because Coulla can save money. Interest is also charged quarterly, but you only pay interest on what you have borrowed. This again is an advantage because the business does not get charged on whatever the bank says. Although having said this, if the bank becomes weary about the ability of a business to repay, it can ask for the overdraft to be repaid on demand. This can have a catastrophic effect on a business position because if they have security on the business i.e. the owner's car they can sell it. I think that Coulla using a Bank Overdraft to fund the costs of her business's expansion cannot be an option because firstly it is a short term source of finance that has to be paid back quickly. ...read more.

Conclusion

Furthermore, people often presume that public companies are more substantial than private companies. > Finance -As a company gets larger, from being a Private Limited Company to a Public Limited Company, additional capital can be generated much more easily from the public on the Stock Exchange. It could also mean that banks could become more lenient in lending money to the business as they will have more money and could fund expansion more easily too. > Being a limited company means that the shareholders as individuals have limited liability. This means that them as members of the company are only liable financially to the value of the shares that they have invested in the company if the company incurs debts. The company on the other hand is deemed a legal body by the Companies act and is viewed as unlimited. If the company fails and incurs debts then the company must pay the debts if funds are available. Even if the company is wound up, the members only have to pay the full value of their shares initially invested and any premium that may be due on them; they cannot be asked to pay anymore even if the company does not have enough funds to cover the debts. Disadvantages of Becoming a Public Limited Company > The legal requirements which have to be met before you can operate the business are quite complex and lengthy > The company cannot make contracts, e.g. take an order for goods or services, until it has been incorporated, i.e. the date on the certificate of incorporation of your company if the registrar of companies passes your application. > Annual accounts must be audited by Companies House. This could be costly and time consuming to prepare. > The public would also have access to financial statements Task 3 The Money Cycle The money cycle is a diagram that shows the inflows - where the source of cash comes from and outflows of cash - where it ends up or goes to in a Business. Money Cycle for 'The Cutting Shop': Amish Patel Peter Eskesen ...read more.

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