The way Swift Transport could improve on the problem or even get rid of the problem is to flatten it. This is called DELAYERING. Swift Transport could do this by cutting out a lot of middle management that makes decisions and push responsibility down the line (delegation). They could get rid of the section managers and unit managers and make the supervisors more organised so they can have more responsibility in their work in quality and output, making the company save money and have more output (STRENGTH). But this is a down point as well, as the workers will have to be better trained to cope with the extra responsibilities. This may result in the workers being paid more; therefore the company loses money (WEAKNESS). Also delaying can cause the business to downside, as the workers will become more productive therefore fewer workers will be needed to do the same amount of work and this will lead to redundancy (WEAKNESS) yet more products being produced than before (STRENGTH).
This type of internal structure also causes a lot of bureaucracy (WEAKNESS). Also the hierarchical structure shows the communication between the colleagues, also there are smaller spans of control (STRENGTH), meaning that workers that have authority have less to control and finally people have specific job roles (STRENGTH) thus meaning that they can concentrate more on that job, doing it better.
I obtained most of this information from textbooks (GCSE Business Studies - Alain Anderton) and also from my previous projects. I looked for internal organisation and made up my own image of what I thought the organisation structure would look like. Then I applied it to the organisation structure using my own knowledge. The strength of this was that the information cam from an expert source and I was able to apply it to the diagram. The weakness of it is it did not go into a lot of details and so some of it may seem a bit brief. If I could improve it, I would put more detail into the explanation of the organisation structure and would make the chart more realistic.
Swift Transport Plc would have when it started business; set itself a number of aims in which they hope to achieve. The answer to what they want to achieve will help them carry out these aims. Once the aims have been set, the business will need to find a way of achieving them, possibly setting themselves targets to aim for and to action plan with policies to reach these targets.
Swift Transport Plc once it has achieved these aims will want to try and improved these as much as possible. So that the profit gets higher, the service gets better and costs reduce, so try and achieve economies of scale as much as possible. But these aims can carry on and will carry on during the life of the company. Swift would hope that they could expand and carry on expanding in the future. This by internal growth but mainly through external growth - acquisitions. By taking over more companies and possibly merging swift would be a powerful force and would gain extra profits, benefiting the shareholders.
The main targets of Swift Transport Plc are as follows:
Survival-This is the main objective a business needs to achieve and its important one if the business wants to carry on. Survival is when the business continues and succeeds in the market they are in. The first thing that a company needs to do in order to survive is to breakeven. This means the business neither makes a profit or loss, as its sales revenue cancels out its fixed and variable costs with no profit. If the business has a lot of losses, it will be further loss due to it paying off its losses. Swift Transport Plc has already survived but in order for them to survive the company as a whole would have been affected. They would have needed the finance department to set the objective of making sure that they received enough funds, so that they would have been able to pay their debts. This would have come from other capital, from loans etc. The marketing department would have to try and sell the service; this would of involved carrying out market research so that the company would know what the consumers want in the service and will carry on using this service in order to have a brand loyalty. This would bring in sales revenue to cover costs and eventually exceed the breakeven point and gain profit.
Profit Maximisation- Swift Transport Plc needs to make a profit; this is the difference between sales revenue and costs. The profit benefits the shareholder as they will receive a large dividend at the end of the year, but the share price would go up. If Swift Transport Plc wanted to make more profits, the marketing department will need to try and set themselves the objective of trying to sell the service as much as possible to gain more sales revenue. This can be done by means of promotion, advertising, market research etc so that more people will become more aware of the service it offers and more would use it. Also prices of the service could be slowly increased with time. All of these functions will have to be done by the marketing department, in order for Swift Transport Plc to achieve economies of scale.
Swift Transport Plc should try and set itself sales objectives, by trying to increase the volume of the sale of their service. The marketing department can advertise and promote more so that more people are ware of the service they are offering and buy it more, partly due to its promotion. Services would need to have enough workers ready to go on the job and operations should be able to get them to their destination on time.
Growth in Profits - Swift Transport Plc tries to increase its profit by at least 5% a year or higher. This has to be done by selling the service more and achieving economies of sales but much, much lager. This will involve the marketing department to increase its service sales. Marketing department advertising can do this and promoting newly released offers. Market research will have to be done on the services in development; also services will have to work faster in the same time and of a quality service.
Growth in sales turnover- Swift Transport Plc should try to sell 10% or more of its service; this will help them receive more profits. The marketing department will have the job of trying it sell more, via advertising and promotions. Also market research will help them make the service more appealing to its target consumer, in order for them to buy it more. The services department should work faster and produce the service to a much higher quality; this will help it to sell more. As the consumer will see they are getting more quality for the same price.
Market share- this is the percentage of sales, a company has within a particular market. Swift Transport Plc is in the road haulage market, and that is in the freight transport market. The market share is the proportion of sales made by one business compared to all sales in that market. The increase in a companies market share means that is doing better than other firms in that market. For Swift Transport Plc to increase its market share, the marketing department will have to try and make consumers buy more of their service. Selling more of this service would mean that the marketing department will have to advertise more, set up more promotions, carry out market research, try to improve the image of the service, set sales targets (volume and values) and develop new offers to go into that market. The Services department will need to ensure high quality, so that once used, they will be used again due to brand loyalty, but also it will have to meet the demand. Operations would have a part in this in getting more vehicles on the road.
Growth- the objective of growth might be based on that if the firm grows larger it would achieve economies of scale. But also it can be part of the desire for the company to be more powerful and to try and limit the competition. Growth can be internal and external.
* Internal Growth- For Swift Transport Plc to grow internally, it has to set itself the objective of selling the service in its existing markets and selling this service in new markets (e.g. further into Europe). The marketing department will have to try and sell more of the service by advertising and promoting it more, also the department will have to try to sell in other markets appealing to the market consumer e.g. van/HGV hire. For it to do so it must carry out market research, increase the sales of its service (by ads and promotions) and give information to services, this will help them improve the service to appeal more to the consumer.
* External Growth- this is the increase in the size of the business, outside which is achieved by taking over other companies. For Swift Transport Plc to achieve this it will need finance to fund its costs and marketing dept to increase its capital via sales revenue. For the marketing dept to increase its sales, it will have to promote, advertise and carry out market research. Finance will pay off the other company directors (if outvoted) with its capital and the profit made through marketing sales revenue. Human resources will need to recruit new staff, get them trained and ready to work in the other company if job losses are to be made. Also swift could externally grow through mergers of rival companies, this would make them a more powerful force with the combination of resources. Swift would benefit from the acquisitions.
Prestige- this is the image the company portrays in the eyes of other companies and the consumer. For Swift Transport Plc to gain better prestige, the marketing department will have to try and boost the name of Swift Transport Plc. This will have to be done through promoting and advertising cleverly, operations will have to get the service available everywhere and services will have to work to a much higher quality. This can be done through motivating the services team so the service is of better quality, as the workers wanted it to be. This will make not only Swift Transport Plc look good to the public but also the service it offers as well.
But as Swift Transport Plc has been an established company for many years since the 1960's, it is likely that they have already achieved most or all of these goals already when looking at the period they have been operating for. It has certainly achieved profit and both internal and external growth but now it would probably set itself new targets on its new business ventures. So the main aims of Swift now are probably:
. To carry on making a profit for its shareholders.
2. To expand by diversifying such as buying out other companies.
3. Capitalise on the Olympic games by promoting their service
For Swift Transport Plc to carry on making a profit for their shareholders, all they have to do is to carry on what was explained previously on hot to make a profit the more they make the more they will receive. But for the company to make even more profit they should try to achieve the following two aims as much as they can.
For swift to diversify they will need more capital, this is for to take over other companies and pay off its shareholders. Swift is a haulage service, and should look for companies in which would benefit their own service or would accompany it for some apparent reason. For swift to diversify they will need the capital available, this would have to come from the finance department who would have the task of fuelling the takeover and obtaining any extra surplus to cover it. The marketing department would have to advertise and promote the service more in order for the company to make an extra profit through higher sales revenue. This extra money could go towards the take over. Also operations and services would have to supply the demand as efficiently as possible. They should take over Keepsake Ltd as they could use them in future plans.
For swift to capitalise on the Olympic games they will again need to acquire more capital though not as much in order to diversify. They again would need finance to obtain this money through its own funds or from other sources of finance which would give them a large sum of money in a quick time. Also one that would allow them to pay it off with interest with the profit they can make with the Olympics. Also all the other functions will need to work as efficiently as possible to increase sales. But for them to totally capitalise on the Olympic games, road haulage would not be enough. First of all they should use Happy hols Ltd as a part in their plans. They should inform Happy hols Ltd to hold special promotional package holidays to the Olympics in Australia. For this to happen, Happy hols Ltd will need its marketing department to promote these holidays through media so that the public are aware. Next Swift should try to make an agreement with the British National athletics team or all the teams competing in the U.K., to transport their equipment to Sydney. Also in return, they will need their logo with the other sponsors on the teams kits, equipment etc. Finally for them to totally capitalise, they should try to take over Keepsake Ltd much faster even as a hostile take over, this then would allow Swift to try and strike a deal with the Olympic committee that Keepsake Ltd supply the games with such equipment such as cups, platforms, merchandise such as souvenirs, t - shirts etc. From all this, each company would hopefully make a profit. Swift would then get a part of each company profits, therefore capitalising on the Olympic games.
The way I researched this information is by looking it up in textbooks. Then once I had the basics done I was able to apply it to the more complex aims such as capitalise on the Olympic games. Also I used my own knowledge along with the teacher's notes to show how the aims would affect the day to day running of the business. The strength of this is that it is quite detailed and covers all the main aims, the weakness of it, is that it is not very concise and does ten to be repetitive. If I could do it again, I would probably carry on explaining what the company wants to achieve in the future.
During the course of a businesses life, it will inevitably face problems. These problems will affect the running of the business and make it very difficult, but most successful problems find away around these and end up thriving. These problems are known as constraints, and they occur inside the business and outside the business, and are known as constraints. Internal constraints are given to problems, which occur in sources inside the business whereas problems, which a business face from other sources outside the business, are called external constraints. These constraints affect the decision makers in the company, which has a significant impact on the day to day running of the business.
Below I will list and explain the internal and external constraints that Swift Transport Plc will face:
* Trade Union Membership
* State of Market
* Physical Resources
* Advertising standards authority
Capital - This is the money that the company has available as funds e.g. expand etc. The more capital a company has available the more they are able to do. For swift transport, they want to expand by taking over other companies and diversify, which is one of its main aims. For them to do this they will need quite a large amount of funds to take over companies. But the problem with this if swift does not have enough capital to fund itself. This would affect the decision makers, as they would be limited in diversifying, as they would have to get a company they can afford. So swift might not be able to overtake a company it wants to as it cannot afford it but get another which might not as profitable.
Labour - Swift might face problems with employees, such as overworked, underpaid, unhappy with this/that etc. This can cause problems and conflicts between the management and workers (industrial relations), which might result in even more problems such as strikes, boycotting work, no more overtime etc. This could cost swift a lot of money. Also with swift taking over other companies the employees might fear for their job security, as jobs may be lost. This might cause even more problems. This can affect the decision makers in the business, as they will have to concentrate on employee/employer relations, which will cost money and take time. Also there are always risks when they want to diversify that the employees might rebel against it and strike, boycott work, no overtime etc. So swift will have to try to ensure job security by offering extra training, or promoting etc.
Promotion - Promotion is vital for all companies so that people are aware of their service. Also extra advertising and promotion would be needed in order for people to use the service. For a company to be successful it will need consumers to use their service and this is the basis of which reputation is built on. All this will cost money and swift will need to use its capital, also it will need the marketing department to be efficient. But if the marketing department were not, then the business would start to fail and could go out of business. This will affect the decision makers in the business, as they will have to make this their main priority so that they can receive sales revenue.
Trades Union membership - Trades Union membership causes problems, as swift will have to deal with them and the employees. This would take up time, which swift would need and it could work against swift, e.g. the trade's union urging workers to strike. The company will have to give into the union's demands, which might affect other projects, thus preventing other things to happen quickly.
Transport - Transport is the main asset that swift owns, as its whole service is based around them and without transport swift would definitely go out of business. As swift will have a lot of automobiles, they will have to pay the additional costs such as fuel prices, registration prices, insurance, road tax etc. As they will have a lot of automobiles, these costs altogether would add up to a large amount, which the company has to pay for. This will prevent the decision makers in the company from investing money into the business or into diversifying as a lot of money will go on the costs. Also swift will need the transportation to be efficient enough to meet the customer demands and also if they are thinking of transporting goods to Europe, if these can cope.
Communication - Good communication is needed between the workers of swift and the management, and so they will need good industrial relations. If not problems can arise which could slow down the business (explained before). As well as maintaining a good communication within swift, they will need good communication between Happy hols, especially the management. If swift does not have good communication, then this can cause the management to disagree, and this again would lead to incorporation between the two companies. This would prevent swift from using happy hols as one of its business ventures.
Physical resources - Swift always needs physical resources available for the company to run, this mainly being transport available to do the jobs set. If swift do not have enough vehicles, it would prevent them from satisfying demand and this would lead to them having a bad name. Also they would lose money, which they could use to invest in other ventures. Swift then needs to know how may vehicles it needs and how many more it will need. This means that they will have to employ more workers meaning more money lost.
Legislation - Swift Transport Plc has to comply with the rules and regulations that the government have set. Such acts include the race relation's act, sex discrimination act, equal pay act. The main act that swift will have to comply with is the merger act due to the plans to diversify. The company will have to comply with these acts because if they do not, it can cause them to run into trouble with the government. This can result in swift paying fine, losing their reputation or even being shut down. So swift will need to comply with these acts by employing a multi cultural work force of both sexes and of a varied age etc. The acts also affect swift's plans of diversifying.
Competition - All companies face opposition from other similar companies who operate in the same market. Swift will have to compete with rival road haulage companies, which will want to do better than them. Swift will have to try and do better than its competitors as much as it can. This means to try and increase their market share and to try and sell as much service as possible. This will be mainly down to their marketing team who will try and increase brand loyalty. Rival competitors can cause swift to loose sales, resulting in lower sales and losses. This means that swift would loose a lot of money which it could re-invest somewhere else. Swift should conduct market research so that they can provide the customer with a better service, and this has to be done regularly.
Currency - As swift works in Europe now, currency will be a problem. When they provide a service the exchange rates might be lower than those in neighbouring countries meaning that swift would loose large amounts of money when it is converted to sterling. This will make swift loose money and make them reluctant to work in countries where the exchange rates are low. Also currency rates are always fluctuating and this can cause a problem as well. To prevent this swift should work in countries, which have high rates or work with countries that use the Euro.
EU - The European union is a problem to Swift, as it has to comply with their regulations. If they do not swift would be refused to trade with other countries. This would make swift loose money and would not allow them to internally expand e.g. region organisation.
State of Market - The state of the market will determine how much sales revenue swift will receive. If there were a boom in the market this will allow swift to sell more of their service, as people will be spending more, this means that swift would be receiving more profits and probably achieving economies of scale. But when the market is in recession, this would cause people to spend less and swift's sales revenue would fall due to less money. This would make them lose money, which they could invest.
Environment - Swift as a road haulage business i9s bound to cause some pollution due to all the exhausts of the lorries, vans etc. Environmental groups such as Greenpeace would campaign against swift and would possibly cause disruption. This would cause swift to slow down, as they would not be able to work as efficiently due to pressure from these groups. This would cause them to loose money and to try and satisfy these groups.
Media - The media can be very damaging to companies with their damaging reviews and reports, especially if the company is facing legal action. Therefore swift will need to be careful what it does in the public eye and maintain good public relations.
Advertising standards authority - The ASA is a board of authority, which monitors all, advertising except that on T.V. and radio. The British codes of advertising and sales promotion state that advertising must be legal, decent and truthful, and must not cause offence. If Swift Transport Plc broke these codes, the ASA would make it uncomfortable for Swift until they withdraw the advert. Also the ASA could report Swift to the office of fair-trading, which can prevent certain claims in future adverts. Swift must then try not to break these codes and design adverts, which are suitable to all the public.
I used textbooks to find all the constraints and also my own knowledge when applying them. The strengths of this are that I mention a lot of the internal and the external constraints that would affect Swift. The weakness of it is that I do not explain how it prevents the business to follow a certain course of action very well. I could improve it by going into more detail in explaining the knock on effects.
A cash flow forecast is a detailed estimate of a firm's future cash inflows and outflows per month. From this can be derived the monthly cash flow and, by adding together each month's figures, the cumulative cash position. The purpose of this is to see how the cash received by the company will flow through the business over a period of time in the future. It will show the amount of expenditure and income, and show the left over balance of each month. They are mainly used to see how the money will flow through the business and whether the company will receive a negative cash flow that will be purely temporary. Then the required arrangements can be made to help the company fund this loss until it can have a positive cash flow.
A company such as Keepsake Ltd would use the cash flow like other companies to see how money flows through their business. If Keepsake Ltd did not know how the cash would flow through the business; it might receive a period where there is a lack of working capital. This would mean that the company would not be able to pay its staff on time, it would not be able to take advantage of cash discounts offered by its creditors for prompt payment or it might not be able to pay its creditors at all. This would lead to legal action by the creditors to recover their debts and could force the business to close down. But the main reason why Keepsake Ltd would need a cash flow forecast is because Keepsake Ltd accountants can identify times of the year when there will be shortfalls of cash, this would give them time to arrange an overdraft with the bank to cover it. Also surpluses of cash would be seen, meaning that Keepsake Ltd could re-invest this money back into the business. This will help Keepsake Ltd see if it would survive in the future and to see how much profit or loss it would make. If Keepsake Ltd did create a cash flow forecast and it showed that they were to have cash problems; they would be able to make arrangements to cope with this some way. The cash flow helps accountants of Keepsake Ltd identify when there will be more expenditure going out of the company then income coming in, and also when the company's income is more than the expenditure.
If Keepsake Ltd were to be taken over by Swift then the cash flow would have added significance, as it is more likely for companies who have just been taken over to have liquidity problems. These are usually due to the company failing to collect its debts from customers, customers not paying in time or giving too much credit to customers. But by using the cash flow forecast, Keepsake Ltd would be able to foresee the company's future liquidity problems and try to prepare for them.
A cash flow forecast is relevant to a business as a business needs to know how cash will flow through the business, especially if it has certain plans e.g. expansion. This will enable the business to foresee any problems with the way the money flows such as negative cash flow. This will then give them knowledge of what is going to happen, and so enables them to plan for that problems. It will also help them see any surplus cash, which then can be re-invested. The cash flow forecast though mainly will help the business prepare itself beforehand. This is a great help as they will be able to foresee problems, which they can get themselves out of such as going into minus. This then could cause the business to going into major debt, which would cause the business to close down or be taken over.
Explanation of Cash flow forecast for Keepsake Ltd
Swift needs this cash flow forecast for the reason made above, and now I will explain the aspects, which make up this forecast and what the figures mean in regards to Keepsake Ltd.
The main aspects of the cash flow forecast are the Receipts or the income, the Payments or the expenditure, the Net cash flow and the opening and closing balance. The receipts are the income, which the company receives; meaning the money it receives from sales of its service. Also they can include grants, which is any form of extra funding which has come from the business or from other sources of finance e.g. loan. The payments are the amount of expenditure the company has, this means the amount of money, which the company has to pay out from the business, these include paying suppliers, the cost of sales, debts etc. The net cash flow is the amount, which the company has made or lost for its self, this is found by taking the total amount of expenditure from the total amount of income received. But this amount is exclusive of tax and any other hidden costs. The opening balance is the amount of money, which the company had made that in the previous month and the closing balance is the amount, which is made from the income minus the expenditure added onto the opening balance that month. All these features make up the cash flow forecast.
I will now explain what the figures mean in context to Keepsake Ltd. In the cash flow forecast Keepsake Ltd would receive income from grants, equipment which it hires out, the cups it makes and sells, the hire of marquees, any merchandise it sells through the advertised event, the hire of their platforms and any souvenirs it sells. But Keepsake Ltd would also have expenditure on any bank loans, any novelties it sells, other additional costs, any overheads, the transport costs, the hire of vehicles and the wages of its workers. This accounts for all Keepsake Ltd income and expenditure or inflows and outflows.
In the first month of the business year in April Keepsake Ltd make a total of income of £220,000 and total expenditure of £150,000, which leaves them with a net cash flow of £70,000. As the opening balance was £0, the closing balance with this added would be the same at £70,000. In the next month of May they have an income of £220,000 and an expenditure of £150,000 giving them a net cash flow of £70,000. This then gives them a closing balance of £70,000. The next month in June Keepsake Ltd have an income of £259000 and have an expenditure of £191000, which leaves a closing balance of £68000. In July they make an income of £277000 and have expenditure of £226000, this leaves a closing balance of £51000. In August Keepsake Ltd have an income of £288500 and have an expenditure of £279000; this leaves a closing balance of just £9500. In September Keepsake Ltd make an income of £328000 and have an expenditure of £344000, this leaves a closing balance of -£16000. In October they have an income of £881000 and have an expenditure of £577000, this leaves a closing balance of £304000. In November Keepsake Ltd has an income of £431000 and has an expenditure of £372000; this gives a closing balance of £59000. In December Keepsake Ltd makes £277000 as income and has £226000 as expenditure, leaving a closing balance of £51000. At the start of the next year in January Keepsake Ltd make £245000 as income and £199000 as expenditure leaving £46000 as the closing balance. In February Keepsake Ltd makes £20400 as income and £172000 as expenditure leaving a closing balance of £32000. And in March Keepsake Ltd make £183000 as income, £153000 as expenditure leaving a figure of £30000 as the closing balance.
If you look closely at the figures of Keepsake Ltd especially at the closing balance you will see that the figure fluctuates through the business year. Also if you look at the graph you can see that the closing balance starts off steadily for three months where upon the fourth month it starts to gradually decrease until the sixth month where it goes into minus. Then after in the next month the closing balance increase dramatically until it peaks and then it dramatically drops to around the same level it started the year with. Then from there it slowly starts to decrease until the end of the business year. The reasons for this fluctuation are due mainly to one reason. At the start of the year Keepsake Ltd closing balance is just above £50,000 and it carries on this way for the first three months. This is Keepsake Ltd usual business. Then slowly it starts to decrease until it goes minus £16000, then immediately it increases. The reason for this is because in the month that it peaks is the month of the Olympics. This is what makes the figure rise due to all the publicity of the Olympics affecting the sales of Keepsake Ltd. But the reason it drops and goes into the red is due to the company making plans and buying stock and equipment to help them cope with the sporting games. This cost more than the company could afford at that month and that is why is had negative cash flow. But once they were equipped for the Olympics their sales shot up causing them to have an extremely high income due to all the publicity and the demand for their service.
After October (the main month of the Olympics) the figure drops, this is due to the Olympic games as well. The reason for it is, that the Olympics would still be going on but all the hype would have gone and so the sales would fall but as the business would still be needed the costs would still remain high. This would result in the closing balance to drop dramatically as there would not be as much income to leave a high net balance, when the expenditure is taken away from it. After that the Olympics would be over and Keepsake Ltd would carry on with their normal business activities, this is why the closing balance goes back just above £50000 like in the beginning. But it starts to decrease very slowly which could be a sign that the company are going to have a low cash flow. Just before the Olympics, Keepsake Ltd are to go minus, to overcome this they could take out an loan or an overdraft to cover the expenses so that they are still able to prepare for the Olympics. But while they are preparing, get them out of trouble. Also as their closing balance starts to drop slowly after the Olympics, I would advise the company to do another cash flow forecast, to see if the company will get into trouble then. If they will, they can acquire another source of finance to get themselves out of trouble, which will allow them to survive, and carry on trying to make a profit.
The way I researched it is from textbooks and from my own knowledge. The strengths of this are that I explain in detail the main features of a cash flow forecast. The weaknesses are that I did not do a lot compared to how I have done before. I would improve it by doing more and possibly adding more to the cash flow forecast to explain.
Task 7- Sources of finance
* I need to research sources of finance. The reason for this is so that I will be able to recommend the appropriate source/s of finance, which will benefit Happy Hols Ltd to its maximum. I will write this in a report format. This is a task in itself and so is important. I will get this from textbooks and from my teacher's knowledge and notes.
Happy Hols Ltd want to invest in the extension of camping holidays, but it needs a source of finance, which will enable it to do so. I will investigate the main sources of finance and recommend the most appropriate one/s for Happy Hols Ltd.
There are many sources of finance, which would all provide the business with a quick source of money, which will have to be paid back. But the amount the company needs can limit them to a range of sources of finance and methods of repayment e.g. interest. The sources of finance can be split up into three types; long term, medium term and short term. Long term finance is mainly for companies who need a large sum of money, which would be difficult to be paid back, this would be used to provide start-up capital to finance the business for its whole lifespan, finance the purchase of assets with a longer life, such as buildings and provide expansion capital for large projects, such as building a new factory or taking over another business. The repayment as it is so much would be paid over a number of years rather than straight away. Medium term finance is again for high sums of money needed but not as high as long term, these usually would be used to finance the purchase of assets with a two to five year life, such as vehicles and computers, to replace an overdraft which is difficult to clear and is proving expensive and to finance a change in strategy, such as to switch marketing focus from Britain to the whole of Europe etc. But the repayment would be faster than long term, such as in a couple of years etc. Short-term finance is when a company needs money quickly for immediate things, which are temporary; the repayments are much quicker than the others. They would be used to bridge temporary finance gaps, to get through periods when cash flow is poor and to cover temporary needs for extra funds due to unexpected problems or opportunities.
As Happy Hols Ltd wants to invest into a potentially expensive extension, the possibility of using a short-term source of finance would be ruled out due to the size of the plan. This would not be sufficient enough to cover its costs, as the source would not be as large and require quick repayments, which would not be possible. The types of short-term finance would be a bank overdraft, trade credit and debt factoring. Also some sources of medium term finance would not apply, as it would not add up to the costs of the extension such as leasing and hire purchase.
Possible sources of finance
I will now explain the possible sources of finance, which Happy Hols Ltd could use:
Medium term finance
Bank term loan - This is possibly the simplest form of loans available to businesses. The average bank manager dealing with a medium sized firm and responsible to head office for the performance of the branch uses a set of well-defined criteria when making a loan. A bank loan is for a fixed amount at a fixed rate of interest. There is likely to be a demand for regular payments.
The advantages of a bank term loan is that financial planning is made easier as repayments are made in regular instalments and the interest rate are often fixed, but the disadvantages are the smaller the business the higher rates paid due to presenting a higher risk of things going wrong.
Long term Finance
Sale of Shares - This is the issuing of shares of the business to other investors who want to buy into the company.
The main advantage of issuing shares is that the shareholders have limited liability if the business fails. Personal possessions are not at risk and their liability is limited to the actual capital invested. Also the capital is raised by issuing shares (which are a proportion of what the company is worth) to investors, who are encouraged to buy by the promise of receiving dividends or profits on their shares. Also shares can be sold as preference shares which offer a fixed return as profits change from year to year, according to how well the company has done.
The disadvantages of selling shares are the administrative costs of issuing shares are high. Also it is difficult to estimate the market price of shares, though this problem can be avoided if tender issues them, where investors state how much they are willing to pay for them. Also the price of the shares can go up or down and shareholders may have to sell at a lower price than they bought it. Also the shares of an Ltd will have to be sold privately, which would costs money and investors might not want to invest due to the lack of hassle from buying into a Plc.
Reinvested Profits - This is the money that the business makes being re-invested into the business to aid its plans.
The advantage of this is capital can be raised by the company reinvesting or ploughing back the profits made at the end of the year, after expenses and dividends to shareholders have been paid.
The disadvantage of this is profits may be scare or non-existent, especially in times of recession.
Mortgage Loans - This is a loan where the lender insists on some asset of the business being tied to the repayment of the loan. In the event of bankruptcy or liquidation that lender will then have priority on the money from the sale of that asset for the repayment of the loan. The asset is always land or property.
The advantage of this is capital is often supplied by pension or insurance funds for a loan over 25 - 30 years for buildings or land, with the asset as security.
The disadvantage of this the loans are usually only given when large sums are required.
Venture Capital Loans - Venture capital is risk capital, usually in the forms of loan and shares as a package, to provide a significant investment in a medium or large business.
The advantages of this are capital is supplied by venture capital firms who accept a certain degree of risk being inevitable. Also most venture capitalists also provide help in the form of back up management and financial expertise. Also the governments Enterprise Investment Scheme offers incentives to private investors willing to invest in unquoted companies.
The disadvantages are that most venture capitalists are only interested in loans for more than £50000 and some only consider ventures where more than £250000 is involved, as the administration costs are not worthwhile on smaller projects. Also they charge a negotiation fee for arranging the finance and they generally expect a non - controlling equity stake of 20 - 40% in the firm's capital, as a return of their investment.
Debenture Loans - A debenture is a long-term loan, which does not have to be repaid until an agreed date. Debenture holders are entitled to a fixed rate of the return year and have priority over all the shareholders.
The advantage of this is that individuals can supply capital to a company in the form of a long-term loan called debentures, which have to be repaid on an agreed date. These payments take priority over payments to all other shareholders.
The disadvantage is that the company has to offer some security for the loan, which can be sold if the company cannot meet the payments. In the case of a fixed debenture this is a specific asset such as a building or land.
(Source - Advantages/Disadvantages - Understanding Industry by Ian Marcousé pg 85-86, Definitions - Business Studies Pg 297 - 301 - Susan Hammond & A-Z Business Studies pg 148, 167 - David Lines, Ian Marcousé & Barry Martin)
From the different sources of finance I have investigated above I will now explain what the findings mean in relation to Happy Hols Ltd Ltd. Happy Hols Ltd needs a source of finance for them to have an extension which involves camping holidays. Happy Hols Ltd have many options to what kind of extension they require. This can be that they want to own a camping site which is registered to them which would involve them buying the land etc, or they could set up a joint venture which would involve them paying an existing camping site company to set it up for their customers, but in the process paying the camping site commission from its profits. Of course both types of extension would require totally different amounts of capital and both have their advantages and disadvantages. But both act as an extension and I will select the possible but appropriate sources of finance for both plans of extension of camping holidays.
If Happy Hols Ltd wanted to invest in camping holidays but wanted to extend that they had a joint venture, which is when two or more firms set up a business division that will be operated jointly, then the possible sources of finance would be a bank term loan, though sale of shares is possible or re-invested profits or even debenture loans. The reason for a bank term loan because Happy Hols Ltd would not need so much money if they were to set up a joint venture with another company. They would just have to pay the company money to use the campsite or the land, to build the appropriate structures and to get staff to be employed unless the camping site company is able to provide it. The bank loan will just be enough to cover these costs (including paying the campsite to use the area and facilities) and from then they will have to give part of the profits to the campsite owners as commission. Then with the remaining profits pay the bank loan off and then re-invest the remaining surplus money into the business. Though this is a good idea, as Happy Hols Ltd is a small company they will have to pay higher rates of interest on the repayments.
Happy Hols Ltd could also use sale of shares to gain the finance to invest in the extension of camping holidays. First of all they would have to put the amount of shares that would have enough value for them to pay the campsite owners and to pay for the additional costs, then they would be able to get the campsite up and running. With the profits they will be able to pay the commission to the owners and keep the rest to re-invest. Though this again is a good idea (especially to the person/s who buy the shares), the administrative costs are high, prices of the shares can be difficult to value, and you might end up selling more shares one time for a certain value but another time a smaller amount of shares might cost the same value.
Another way Happy Hols Ltd could invest in camping holidays is through re-investing its profits into paying the campsite owners to use the area. Then from the profits they can pay the commission to the owners, and keep the rest. This is a fairly good idea if Happy Hols Ltd makes a lot of profit as they will not have to do anything else e.g. sell anything to gain the finance, but just carry on maximising profits. But if they do not make much or any profits it would take an extremely long time for them to get the required capital.
From the sources of finance mentioned above, all these allow Happy Hols Ltd to pay the campsite owners the money to use the campsite, make a profit, pay the commission and pay any debts. But this all depends on how successful the business is in its business venture.
Instead of having a joint venture Happy Hols Ltd could invest in camping holidays by setting up their own campsite individually, and so naming it through their own name. If Happy Hols Ltd was to do this then they would need totally different types of finance to those possibly used in a joint venture. They would need sources finance, which would give much higher capital, as more money would be needed. The possible source of financing could be Debenture loans though venture capital loans and mortgage loans could be possible as well. The reason for debenture loans is due to the fact that Happy Hols Ltd will need a lot of money to set up their own camping holiday business, this means that they would have to buy the land which could be in another country where prices could be higher, complete the construction such as the buildings, employ a work force etc. They will have to do a considerable amount, which will involve quite a fair bit of money. As debenture loans can be quite high, Happy Hols Ltd can borrow enough that would be able to cover all these costs. Once they have set it up they can use the profits they might make, to pay the lender their due repayment on the agreed date. Though debenture loans are good for the development, something has to be offered an s security, this probably will have to be the land they have bought.
Venture capital loans could be used as well as again they will lend large sums of money to businesses and to set up your own campsite would cost a lot. They will provide the money, which then Happy Hols Ltd can buy the land with and carry out what it needs to make it a successful business. But as part of the loan Happy Hols Ltd would have to give some shares to the venture capitalist, which would have a stake in the company. Also venture capitalists charge a fee, which could costs, a lot of money. With the money the business makes as surplus, they would be able to pay off the venture capitalist but they would still loose shares.
Mortgage loans could also be used as a source of finance, as they give large sums of money as loans and have like with mortgages a long-term repayment system. Happy Hols Ltd would be able to get the money they need to buy the land and to set the campsite up, but then with the profits they would have to just give a small percentage of the money to pay the mortgage repayments. Though this is a good idea the asset that would be the land and everything on it would be the security, and so they could loose it.
The information was relevant and useful, as I needed to advise Happy Hols Ltd on appropriate sources of finance. They need a source of finance so that they can invest in the extension of camping holidays, and so they will need to know what would be the right sources of finance, that would benefit them most. This would lead to them making a big return on the investment and so the project would be successful, but this can only happen if the correct source of finance is recommended. This is what I have to find and explain. If the wrong one is used this can lead to the company going into debt or not being able to complete their plans. Selecting the right source of finance would help the company achieve their plans; this would also allow the company to grow. But also if the company's plans are successful due to the source of finance, this would allow them to make a good profit, that they would be able to re-invest into the business to try and improve it.
The information is valid, as it has come from Business Studies books and other resources, which have been written by experts who have vast knowledge in the subject. Also the teacher knowledge is an expert source and none of the resources are wrong. It does not help a lot, as the sources of finance have not been recommended specifically to the best form of investment e.g. bank loans when buying new equipment etc. Also all the sources and resources are up to date and are totally relevant to the subject.
Happy Hols Ltd has two choices in investing into the expansion of its camping holidays, either it can go into a joint venture with an existing campsite company or start its own campsite. In both cases the required source of finance is needed but it must be the right one, for that the company is able to afford their extension at the time and promote it so that it will become successful. This could be done through the existing travel agent branches. With the profits the company would be able to pay anything it owes either as debts or as commission and still have enough for the business and shareholders.
I have decided on what source of finance that would be appropriate for each type of extension and I will also recommend which would be the best idea, in terms of the business. Firstly if Happy Hols Ltd wanted to invest in camping holidays through a joint venture, the best form of finance would a bank loan. The reason for this is because Happy Hols Ltd would not need very much to finance the joint venture, they would just have to pay the camping site company to use their site and then from their pay them commission. This is not very much and so a bank loan would be sufficient enough for the sum needed. With the profits that the company makes it would pay the commission to the campsite owners and with the remaining profits pay the bank loan off. I could see that a loan is paid in easy instalments, which makes financial planning easier. And as the rate is fixed, the company knows how much it will pay on top of the repayment without it going up. The are not many drawbacks to this option, as when compared to other financial sources I considered. The sale of shares was not as a good idea as the loan as I could see it had very high administrative costs. Also I could see that it is difficult for shares to be valued and also due to the fluctuation of the prices, the company could be issuing too many shares when it could sell less for the same value. But with a bank loan, the control of the company is not diluted as with the selling of shares. Also I could see that a loan would be better than re-invested profits as I could see that there was no guaranteed way that the company would make a profit. If the company wanted to use this method could have taken a long and slow time for the company to be able to save enough capital for the venture, that is only of the company was to make a profit. From these two's drawbacks I can see that the bank loan is the easiest, quickest and most effective source of finance for the company to have a joint venture.
But if the company decided that they wanted to actually own their own campsite for their camping holidays, which would be an advantage as they would be able to do anything, within the legal boundaries, then they would need a much higher amount as capital then in a joint venture, and therefore need a different source of finance. The best source of finance for this is a debenture loan. The reason why a debenture loan would be the best source of finance is because a debenture loan can be a large sum of money, which would cover the costs of buying and setting up a campsite. Also as it is a large amount of money, the company would not be able to pay it back straight away but with a debenture loan it is long term, meaning that the repayments are split into affordable repayments and are to be repaid on agreed dates. This could work to the company's advantage as they could make the repayment dates nearer to where they can predict they will make profits. The only downside with it is that security has to be paid up, though there is not an expensive negotiation fee or are shares given to the lender as an equity stake, as with Venture capitalists. Also the repayments can be flexible so the can be quicker or slower to be repaid, but if the company want to get the loan paid as soon as they can, it is possible rather than the company having to keep the repayments for a very long period of time such as a mortgage.
As you can see I have decided on sources of finance for both ways of investigating in camping holidays from which I done through the investigating and analysing of the possible sources of finance. But both will have their downsides, and so I will use the knowledge I gained from the sources of finance to recommend the best way of investing in the extension of camping holidays. I have chosen to start a joint venture with an existing camping site or camping holiday company. The main reasons for this is because it would be cheaper in paying back the repayments and that if the company want to one day change their plans, that they do not want to concentrate on camping as much any more they could get out of the venture quicker than with the other possible investment. The reason for this is that the company would have to sell the land, but would have to get a buyer first and if they cannot get one fast enough they might loose money e.g. camping not popular to customers anymore. This way of investing does have its strong points over the over such as there would be no disagreements between the two companies, but the repayments of the loan would be much harder to cope with if the plan failed.
I researched this through textbooks, my own knowledge and the teacher's note. The strengths of it are that is very detailed, the weaknesses are that it is very long and not very concise. I would improve it by making it more concise.
Swift Transport Plc has already taken over a company called Happy Hold Ltd, and is considering taking another over called Keepsake Ltd. Swift wants to try and capitalise on the Olympic games in Sydney 2000, and for them to do this they need to take over companies which can have some involvement in the event. If Swift was to take over Keepsake Ltd, it would be able to capitalise very easily as each company, including Swift would be able to profit from the Olympics. As Swift Transport Plc is a road haulage company, it could try and strike a deal with the British athletics team, or any other in the U.K., for it to transport its equipment over to Australia. It could also try with other neighbouring countries, so that it can get as many European country's athletic teams equipment over to Sydney. This means that it will make a lot of profits, as it can charge high prices, as it is an important event for the athletics world. Also, it could negotiate with the country's athletics teams to allow their logo to be among their sponsors, this would give them publicity, and could increase their sales. Also as the Olympics are seen world wide, people in countries, which Swift Transport Plc does not operate in, might see the logo and remember it. As Happy Hols Ltd is a travel agency, it could also try to profit from the Olympics. It could buy tickets for the Olympics and sell them as a package with holidays to Sydney during the Olympic games. As many people will want to go and see the Olympics, as well as go on holiday, the deal would seem good and so Happy Hols Ltd would be able to charge extra. This way, they would be able to make high profits.
Swift could capitalise more if they were to take over Keepsake Ltd, and use them in their plans to capitalise on the Olympic games. They could use Keepsake Ltd to strike a deal with the Olympic committee, for them to be suppliers of the equipment needed for the events; these would include medals, cups, platforms, etc. Also through this Keepsake Ltd could sell its own merchandise as official Olympic merchandise, such as T-shirts, souvenirs etc, this would get Keepsake Ltd even more money.
Though there are chances that Swift might not be granted these benefits, and so they would not be able to capitalise on the Olympics, and would have to set themselves on another business venture.
So if Swift were to do this and take over Keepsake Ltd, they would be able to capitalise on the Olympics, which was one of their aims. As all the companies would make a profit, Swift would get a percentage of the other two companies profits, thus leaving them in a very good financial position. So Swift should take over Keepsake Ltd so that they profit from the Olympics as much as possible, but also for them to expand. Also Swift should carry on expanding after they take over Keepsake Ltd.
In the future as Swift would have expanded even more, with Keepsake Ltd under its wing, and so would carry on growing internally. But instead of growing by taking over companies in the U.K., they would take over companies in Europe. This would make it easier for swift to transport goods into Europe but also let it grow much bigger. It should carry taking over other companies that it can, also it might consider merging with a rival company. This would make it a very big company especially in its market; this would help it to a larger market share, profits, market growth etc. In the future Swift should think about setting up in Europe so that it is much easier for them to transport goods, but also for them to carry on growing. From there Swift can try and provide its service further in other continents such as North America and Asia. This would make it a multi national, along with its subsidiaries in other countries. This would make Swift a very powerful force and very successful.
But for Swift Transport Plc to grow, it must follow the acts passed by the government, especially when merging, that they follow the mergers act.
When Swift does become multinational, they will have to implement changes in the organisation. They will have to organise their structure to that of a regional structure, so that they have their service in different continents.
From all this Swift would become a very successful company, and perhaps one of the largest road haulage companies in the world, and due to their name being publicised during the Olympic games, people would recognise them giving them a great advantage. This is because they would not have to build up a brand loyalty, as people would recognise them.
Keepsake Ltd would make profits after the Olympics and would carry on its usual business, while Happy Hols Ltd would get its camping holidays. This would increase the sales of the business, and so they will make a profit as well.
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Karim Jagvani 11t6