• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

The management of business finance

Extracts from this document...

Introduction

In this unit I am going to show my understanding of the management of business finance. I will also investigate the sources of finance available to businesses and how to interpret the use of financial information for decision-making. Sources of Finance The core aim of any business is to survive, additionally, it may have other goals such as to make a profit or improve or expand the products or services it provides to satisfy stakeholders, either way, it will need to control its financial resources to do this. By collecting all the available financial information and recording it into various accounts, a business can assess how well it is performing. This is important both for a business internally as well as externally. Financial resources are needed throughout a company's life. The type and amount of finance depends on many factors e.g. type of business, the success of the firm, the economy of the state etc. There are two main types of financial resources that a firm needs. This is: o Capital Expenditure~ this is used for buying fixed assets where large sums of money are involved and needed but this is not used for buying property or new premises o Working Capital~ this is the money used for the day to day running of the business like petty cash When these means are not enough, or the business is not making a quick enough turnover for the business to expand, other sources of finance may be considered that are essential to fill that cleft. Short Term Sources (0-2 years) Short-term sources are usually to cover short-term orders or bulk orders that businesses take on that working capital can't cover and is needed for a brief period of time. These are: o Overdraft~ if a business spends more money then it has in its bank account, we say that it is overdrawn. Businesses usually have an arrangement with the bank whereby the bank will pay the extra money provided the business will pay them back in a fairly short period of time with interest. ...read more.

Middle

They're an asset to the business, so if the value of the building goes up, so does the value of the business. The disadvantages are if variable rate mortgage is taken out, if interest rates are high, so are repayments on the property. o Shares~ (see fig 1.1 for share process diagram) are an important source of finance for limited companies. A business selling new shares that entitle the shareholders to share in the control of the business. Each share gives the shareholder a vote on the direction of the company. The advantages to this method are the substantial amounts of cash that can be raised, can make directors and mangers work harder as they can be voted off the company. The disadvantages are only PLC's can issue shares to the public, some aspects of control are lost in this process and if the directors have a different idea to the shareholders in the direction the company should go in, it could lead to problems, particularly if shareholders own the bigger share in the organisation. o Venture Capital~ a group of people who join together and provide finance for new business that are just starting up. These individuals look for promising businesses and put investments into them. This is similar to share issuing. (See share for pro's and con's of method.) Section Two: Case Study I am advsing a small business called J.N Coolers that sells water dispensers with other benefits such as fruit juice compartments as to what sources in finace to use. The business is growing in size and needs to meet up with demands. I am going to look at the range of finance open to them, assess them and recommend a selected source explaining my reasoning for the choice. Small businesses (SMI's) can be defined as: o Companies not quoted on a stock exchange, o Owners are a few individuals, usually a family connection between the shareholders o The businesses is the only or main income for an individual The small businesses sector is vital in the UK economy. ...read more.

Conclusion

Cash is money current money the business has. So for example if Slookie get paid for an order by a customer that is cash that has come in, but this is not profit as with every order there is costs to be paid like rent, stock, staffing or paying creditors. Profit is however the money at the end of the financial year that is left taking away all expenses. The can be worked out by this simple equations: Income - Expenditure = Profit Below is an example of Abel Company Ltd balance sheet for 2001 showing the profit at the end of the financial year: Manager's decisions on taking on orders will differ depending on the current situation of the company. If for example, there is a profitable order, but the current cash flow of the organization is close to the red, the business may need to renegotiate the payment terms of the order or chase up debtors about payments. Question. When looking at this cash flow forecast, analyse whether the business should either: a) Ask Parker & Slate for monthly payments, one month after each delivery? b) Take out a short-term bank loan for the difference between the present overdraft and the required overdraft? Answer. It would be in the companies' best interests to a) Ask Parker & Slate for monthly payments, one month after each delivery looking at the current cash flow of the business it would make financial sense. Looking at the current cash flow, (see assignment sheet) Slookie would keep out of the red. The chart below shows the potential cash flow if payments are taken one month in advance as the business proposes in answer a: July August September October November Production �80.00 �80.00 �80.00 - - Cash In - �6,400.00 �6,400.00 �6,400.00 - Materials - �2,000.00 �2,000.00 �2,000.00 - Labour �1,600.00 �1,600.00 �1,600.00 - - Fixed Costs - - - �5,000.00 - Net Cash flow �1,600.00 �2,800.00 �2,800.00 �600.00 - Opening Balance �1,000.00 �600.00 �2,200.00 �5,000.00 �4,400.00 Closing Balance �600.00 �2,200.00 �5,000.00 �4,400.00 �4,400. ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our AS and A Level ICT in Business section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related AS and A Level ICT in Business essays

  1. Marked by a teacher

    Unit 4 Business Studies

    4 star(s)

    The content is very relevant to the business, as there is a online auction taking place Cars Direct have included a phone number for customer to phone on so they can get across to the Cars Direct staff quickly so they do not loose out on bidding on a purchase,

  2. Tesco Finance Department

    advert, and if I were to show an ad in a newspaper then it would be limited to black and white.

  1. Business Aims and Objectives.

    Brochures and catalogues advertising products are another form of written communication, as are advertisements whether for products or the recruitment of staff. Emails may contain attachments such as word documents or spreadsheets. Other examples of written communications include telephone messages, notices on staff notice boards, staff newsletters and documents on the staff intranet.

  2. In this assignment I am going to produce a detailed business report on a ...

    This provides clear definition of the group's purpose and goal, accountabilities and the scope of permitted activities of companies, executive function and individual staff. Computers are also used to check up the information, but are kept update by the most frequently used form of external verbal communication, which is the telephone or mobile phones.

  1. E-commerce in Business Companies of Bangladesh.

    We have stopped fraudulent practices and vastly reduced the workload of both the Bureau and our embassy in the US," said Hassan. "And in addition, we can develop a closer working relationship with our colleagues in US Customs." As well as eliminating fraud, EPB has reduced VISA processing cycle time

  2. In this coursework I need to produce a detailed business report on one medium-sized ...

    The approach of Tesco to worker welfare goes beyond its own employees. The company insists that its suppliers meet certain employment standards in matters such as fair pay or minimum working ages. Tesco believes it can play a positive role in influencing working practices around the world.

  1. Apple Incorporation - Case Analysis

    The best example is the attack on the New York Twin Towers, the Pentagon, and Spain's railway station. These aggressive acts cause a negative impact the economy that directly affects Apple and its competitor's sales and distribution channels. Research and development costs higher than competitors The market requires that participants continually provide innovations and competitive products and technologies.

  2. For my report I will be looking at two businesses, a small business and ...

    rush as stated before, but I think that business was based there also to seek people's attention. Some people may be attracted to this company, if they live close by, however people on the whole, I think would turn away, as it is not a very attractive location.

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work