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Unit 7 Finance, Cash Flow and Insolvency Background Information on Owensport Owensport a sole trader intends to setup a business manufacturing a new style of multi-gym in the Reading

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Introduction

UNIT 7 FINANCE, CASH FLOW AND INSOLVENCY Anzal Ali Unit 7 Finance, Cash Flow and Insolvency Background Information on Owensport Owensport a sole trader intends to setup a business manufacturing a new style of multi-gym in the Reading area. Here are the following fixed assets that he will require to run his business: * Premises * Machinery * Equipment (Office) * Vehicle Working capital * Labour * Spare Parts * Telephone * Stock * Lighting/heating/electric How to pay for the assets For Owensport to purchase his fix assets he should looking init two terms of finance, medium term finance is any thing from borrow money from 1-5 years. The last term of finance is a long-term finance which borrowing money for 25 years, for example Owensport's wants to purchase his premise by mortgage. Here are some of the following ways for Owensports to pay for his equipment. Three of them involve buying the equipment, so you can become the owner; the other do the ownership retained elsewhere the ways are: * Mortgage * Buying outright * Hire purchase * Leasing * Contract hire Mortgage Most people see a mortgage as simply a long-term loan, to help buy a home or a business premise. But the word itself means any loan that's 'secured' against property. With Owensports home as security, the lender is usually able to offer him a lower interest rate than he will find with other types of loan. The lender will check details of the applicant's income, and probably ask to see some recent pay slips. If they are self employed, as Owensport is he may need to show his last 3 years' accounts. He also will be asked about any other regular outgoings (e.g. credit cards and personal loans) so the lender can check that he really can afford the loan. Some people find it difficult to prove how much they actually earn, because they're self employed and have only started the business or been in business for a year or two. ...read more.

Middle

paying for the stocks, wages, bills etc); the source of working capital is current assets. A current asset is a short-term asset, which a company uses to generate cash. But there also is a current liability, which a company has to be taken to account how much working capital the company has at its disposal. To find out the working capital the following equation must be done. WORKING CAPITAL = CURRENT ASSETS - CURRENT LIABILITIES | | STOCK + DEBTORS + CASH Working capital is the same as net current asset and its is imporant to the company balance sheet. It is important to many business to have working capital to meet the company ask. Many compaines have gone under because they have not found enough working capital. The managemnet of the working capital is called the working capital cycle. A working capital cycle chow cash following through differnet stages of business. Some part of of this cycle may take longer than others, and the amount of the working capital will depend on the timing in the business. Loan A loan is an amount of money a company borrow for a set period and with an agreed repayment schedule. The repayment amount will depend on the loan size and the interest rate. Loans are generally most suitable for paying for assets, like gym equipment, for -up capital and for other cases where the amount of money you need is not start going to change. The terms and price of loans vary by provider and are usually negotiable. Advantages * The company is guaranteed the money for a certain period, generally three to five years - unless you breach the loan conditions. * Loans can be tied to the lifetime of the equipment or other asset the company borrowing the money to pay for. * The company will know what the repayments are and can budget accordingly. ...read more.

Conclusion

The advantages of being a Plc are: * You get to raise more capital by floating on the Stock Market * Sell the shares of the business to members of the public * There is limited liability to the owners, if the business goes 'bust' - if the business can longer operate in the fierce market or are facing financial ruin then the owners are protected by limited liability, they only stand to lose the amount they have invested in the company. * Sale of shares allows larger sums of money to be raised * Whilst the money has money permanently, the owners, the individual owners can recoup their money by selling their shares to other people * Directors can be bought in as experts in certain fields However being a Public Limited Company, there are a few disadvantages, which can affect the further success of the company. These are: * To become and trade as a Plc you must have a share capital of at least �50,000. * Low profits may mean low bonuses or dividends for employees/shareholders * There are a number of legal requirements to fulfil when setting up a PLC * Regulations mean that it is more expensive to set up than a sole trader or a partnership * Accounting records of Plc's are less private than those of other organisations. Companies are governed by the Companies Act 1985 which states that financial records must be audited and made available to the Registrar at the Companies House * Directors need to report back to shareholders at the AGM (Annual General Meeting) where unpopular decisions and poor results must be explained. * If the company is operating well, financially, then they are likely to face a take over from bigger competitors. From the above advantages and disadvantages you can see that they both weigh out to be the same on both sides, how ever there are probably more advantages than disadvantages, or there are more disadvantages than advantages. ?? ?? ?? ?? Anzal Ali BTEC National Diploma in Business 07/05/2007 ...read more.

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