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Planning the finance for my new business.

Extracts from this document...

Introduction

Finance Introduction Finance is an essential aspect of making a business successful because if a business is not financed properly the business will become bankrupt. Businesses need money for all sorts of things. Some money will be needed before the business is ready to open. More finance will be needed just to keep the business running on a daily basis. Once the business has been operating for a while, it may need further capital to help it progress into the future. Financing a business is the process of using research to organise a firm's capital and ensure that a business does not exceed its budget. Sources of Finance There are many sources of finance which help businesses to gain all the money they need to start-up or expand. Two types of sources are available to a business, short term sources and long term sources. Short term sources include overdrafts, trade credit, factoring, higher purchase, loans and foreign loans. Long term sources include mortgages, retained profits, grants, venture capital, equity, share capital, debentures and contract hire. An overdraft is an agreed limit with a bank to overspend the businesses account to a specified limit, this benefits a business because it is easily accessible to a firm when they have short term cash flow problems, however banks charge for this facility and interest is payable on overdrafts. Trade credit is an agreement between suppliers and a business to pay for goods over a period of time after they purchase them, this benefits a business because the goods can be used before they are paid for and no interest is charged for this facility, however cash discounts may be lost if the payments are not made within the agreed limit of time, the firm has to develop a good reputation with the suppliers before the suppliers are able to trust them with this facility and the business also has the possibility of over-stretching their budget. ...read more.

Middle

from Zopa Loan, the total amount repayable is a lot more with Santander over a 4 year period than the total amount repayable with Zopa Loan. I decided not to apply for a loan with Santander for �2,000 over 2 years because although the total amount repayable with this bank for �2,000 over a 2 year period is less than the total amount repayable with Zopa Loan, the monthly payment on a loan with Santander over a 2 year period is a lot more than the monthly payment from Zopa Loan. The running costs of my business may vary therefore there may be times at which I cannot afford to make the payments I need to. As a result of this I may be required to use one of the sources of finance to support me in these times. However as my business is not a seasonal business I do not think that the running costs cost will fluctuate too much. Costs � Rent of Premises �336 Wages �3,184 Products �63.48 Advertising �250 Electricity Bill �40 Water Bill �50 Gas Bill �67 Phone �80 Loan Repayment �65.42 Council Tax �100 Average total running cost per month: �4,235.90 My total running costs per month are fairly high and although I think my business will make enough sales to be able to cover this cost there may be times when my business does not attract as many customers it needs, therefore to ensure that my business always has the financial aid needed available to it, I have decided to keep an overdraft facility to ensure that my business always has the money needed available to it. Although banks charge for this facility ad interest can be payable on the money borrowed, it allows extra money to be easily accessible for short term cash flow problems. Expected Revenue The total revenue is the total amount of money going into a business from sales, this is also known as sales revenue or turnover and can be calculated by the prices per product multiplied by the number of products sold. ...read more.

Conclusion

NET PROFIT NET PROFIT MARGIN = ------------------------------ X 100 SALES The net profit margin of my business is 29% �22,562.12 Net profit margin = --------------------- X 100 = 29% �77,800 According to www.lloydstsb.com the net profit margin for most new businesses is around 5%, the net profit margin for my business is significantly high compared to this therefore the performance of my business is a lot better than most other small businesses. Return On Capital Employed This ratio is a measure of the efficiency of a business in turning the capital that they invest into profit, this is extremely important because this is the amount of return we receive in the business being measured. Return on capital employed is calculated by dividing the net profit margin by the capital employed then multiplying this number by 100. The return on capital employed should be over 10% for a small business, if it is under 10% business owners should invest in other things to gain more profit. However a large business is likely to receive 10%, this is good for a large business because, although the percentage is fairly low, the net profit and capital employed will be very high. NET PROFIT RETURN ON CAPITAL EMPLOYED = --------------------------------------------- X 100 CAPITAL EMPLOYED The return on capital employed of my business is 545.6% �22,562.12 Return on capital employed = ------------------------ X 100 = 545.6% �4,135.26 The return on capital employed for my business is extremely large, this means that my business is performing very well and will be successful therefore there is no need for me to invest my capital in other ventures, such as a fixed deposit, to get a large amount of return on capital employed. My set up costs are low and my predicted sales revenue is very high as a result of this my return on capital employed is also very high, however I may have overestimated my sales revenue therefore these figures may be slightly unrealistic. ?? ?? ?? ?? 58 ...read more.

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