What is 'Finance?'
Finance describes the management, creation and study of money, banking, credit, investments, assets and liabilities that make up financial systems, as well as the study of those financial instruments..
TYPES of finance.
1. Public finance-tax system, government expenditures, revenues and debt.
2. Corporate finance-liabilities, revenues, managing assets, loans
3. Personal finance-budgeting, insurance, mortgage planning, savings
4. Social finance-all investments made in social enterprises
Sources of finance.
1. Internal sources- earn from within organization
2. External sources-earn from outside source.
INTERNAL SOURCES
1. Owner’s investments.
2. Retained profits
3. Sale of stocks
4. Sale of fixed assets
5. Debt collection.
…show more content…
By agreeing to provide collateral to the lender, you could put some business assets at own potential risk. You might also be asked to personally guarantee the loan, potentially putting your assets at risk
Advantages and disadvantages of external finance.
Bank Loan Additionally, if business goes bad advantage to borrowing the money is that it enables you to keep your cash on hand to use as operating, you may be able to protect your most important personal assets by declaring bankruptcy. The disadvantages are that you'll have to pay interest on the loan. Furthermore, your payments will be due on time regardless of whether business is bad or good.
2 Trade Credit Advantages Helps cash flow situation Pay creditors at a later stage allowing goods to be sold.Disadvantages If company has poor credit history history
3 Sale of Assets Advantages If property it may have appreciated.Disadvantages Depreciation – value has decreased therefore not worth as much as when the company boug
4 Hire Purchase Advantages Quick and easy to raise finance No security Will eventually own it and will become an assetDisadvantages Not owned until item is fully paid for Not owned until item is fully paid for Interest charged
…show more content…
For example, if your business is growing to the point that you need additional manufacturing space to keep pace with demand, external financing can help you get the funding you need to build your addition. External funding can also be used for making large capital equipment purchases to facilitate growth that the company cannot afford on its own
Ownership
o external financing, such as investors and shareholders, require you to give up a portion of the ownership in your company in exchange for the funding. You may get that large influx of cash you need to launch your new product, but part of the financing agreement is the investor is allowed to vote on company decisions. This can compromise the vision you originally had for your company when you founded it.
Research, Time and Knowledge
Financial management requires a significant amount of information, which takes time to collect. Once the data is gathered, you must take time to analyze it properly and discuss it with others involved. If you aren't sure how to approach a financial question, you must either learn about it or call in an expert, especially as company objectives change or the market
ast March, the Small Business Administration (SBA) assigned a limit on the agreement it was offering on "goodwill" financing, limiting them to $250,000 or 50% of the total amount of SBA loan, whichever amount was lower. "Goodwill" financing is an essential part of the SBA loan designed to obtain the intangible assets for any existing business. The limits mentioned beforehand were set to avoid the inflation of the intangible assets ' value. This is one of the reasons why you need to be practical when applying for an SBA business loan as a step towards achieving your entrepreneurial dreams. There are many other important things that you need to know about utilizing SBA loans to start or acquire a business.
When trying to obtain a small business loan you are going to want to do your research first. The best place I feel that will be willing to work with you the easiest is the place you bank with. The next step would be to fill out the loan application for the lender to review the application for credit score and history. The lenders will most likely analyze the financial ratios of your business and check to see what collateral and equity you have. All this will be to determine whether you have the ability to repay the loan. After the review is complete the lender will make one of two decisions, approve it or turn it down.
Firms can grow internally or externally. However, not all firms have adequate resources and capabilities and thus look for partners. Studies showed that more than two-third companies depended on external growth (Hewitt 2005).
Advantages: a. Increased revenue and economy of scale by increasing value to the combined
Advantages a) each division will have their own responsible b) financial independence c) costumers and supplier’s independence
Financial decisions are something that we studied in this class. There are companies that have to decide many things about finances. They have to decide if they want long-term financing or short-term financing. They must go through a decision process. Many factors, including interest rates and terms of the loans can affect decisions. Many companies have financial forecasting to help make financial decisions. “Corporations would like many financing alternatives in order to minimize their cost of funds at any point” (Block, Danielsen, & Hirt, 2011,p. 169). Financing and money are a major thing that is referenced many times throughout the Bible. The book of Proverbs 22:7 tells us, “The rich rules over the poor, and the borrower is the slave of the lender” (Proverbs 22:7, ESV). The Bible teaches us that if you borrow, you are subject to the lender and any terms they may have. The Bible teaches us that money is not what is important in our lives. The book of Romans 13:8 tells us, “Owe no one anything, except to love each other, for the one who loves another has fulfilled the law” (Romans 13:8, ESV). That being said, it is very hard to have a business and have enough funds to be able to operate without ever having to borrow funds. You have to make sure that there is enough cash flow and not get into too much debt to be a successful business. Businesses have to make many financial decisions. Every person out there has to make many financial decisions within their lives. We should all follow God’s word as much as possible. Personally, if we do this then we will not let money or finances be the main focus in our lives.
Debt financing is beneficial because the loaners do not often get involved with the company or any decision making within the company. The downfall is the risk that is assumed with the debt, which is, the company may not be able to pay back the loaner. In that case, the loaner would go after the owner or partner personally. There are many forms of debt a company is allowed to take on, such as ‘venture’ debt, even if they are a high-risk corporation. A ‘Venture’ debt is a form of senior debt that requires some sort of asset to back up the loan so the loaner does not lose the loan in its entirety if the company were to fail.... ...
The lender is not going to laugh at you or think you are a bad business person because of your credit. Instead, they are there to help you get your business back up and running. Be honest with them and
To begin the analysis on Krispy Kreme, the first analysis is that of the depreciation analysis. There are three different methods to calculate depreciation and they are straight-line, units-of-production and double-declining-balance (Larson, Wild, & Chiappetta, 2005). The Krispy Kreme Company uses the straight-line method to calculate their depreciation on building, machinery, equipment and leasehold improvements. The breakdown of the depreciation on property and equipment consist of land, buildings, machinery and equipment, leasehold improvements and construction in process (Larson, Wild, & Chiappetta, 2005). Krispy Kreme’s total gross property and equipment in 2002 was a total of $156,484,000 and in 2003, it was a total of $252,770,000. The accumulated depreciation for the year 2002 was a total of $43,907,000 and for the year 2003, the total was $50,212,000. To find the net property and equipment amount, taking the gross property and equipment and subtracting the accumulated depreciation is the equation used. The net property and equipment for the year 2002 would be $112,577,000 and 2003 would be $202,558,000. Once b...
However the disadvantages of utilizing the bond markets can be avoided if the bonds management is efficient taking into consideration several changing aspects of the world economic and financial conditions. Moreover, the advantages of using the international bonds market outweigh the potential problems for Shoprite as it presents numerous competitive advantage compared to Pick n Pay or Walmart as described is the advantages section.
Therefore, the company looses cash, which could aid further business operations. Increase numbers of creditors - countless businesses acquire credit to operate, however, too much credit can become a problem for a business, especially, if it also offers credit to customers. This is because you’re ability to pay your credit is dependent on whether your debtors pay you in due time. Therefore, in case they don’t, the business will surface cash flow problems. Over-financing – excessive borrowing to finance your business can result in higher interest rates and tougher repayment schedules and this can lead to cash flow challenges. Over-trading – when a business sells over and above its capability on credit, it results to loans or overdrafts to finance the transactions. If the customers do not pay on time, cash flow problem occurs. Over-investment – often times, a company may be tempted to utilise available cash for investment; purchase vehicles, machinery, premises, and other assets. Too much investment in assets and failure to budget for the future can cause a business to run out of cash and consequently, fail to finance
Access to capital and credit at various stages in the business life cycle is identified as the major hurdle by the entrepreneurs. For many small firms and most start-ups, the personal funds of the business owners and entrepreneur and those of relatives and acquaintances constitute as the major source of capital. For many small businesses, especially during the early years of their operation, credit is simply not available. For many others, the limited available credit is not through bank loans. Due to this many of them rely on multiple credit card balances and home equity loans as major sources of credit for start-up firm. Because banks are bound by laws and regulations to prudent lending standards that require them a risk management assessment for each loan made. These regulations were made more vigor during the late 1980'' and early 1990 . Banks always found that lending to manufacturing firm with hard asset such as property, equipment, and inventory has always been easier than lending to today's expanding service sector firms. Because the service sector firms own few hard asses, therefor lending judgment have to be based in terms of character, markets, and cashflow, which make it difficult to the bank to meet the regulations for the approval of the loan. Additional, the banking industry, as well as the entire financial sector of the
Smaller companies are much more likely to obtain an attentive audience with a commercial loan officer after the start-up phase has been completed. In determining whether to extend debt financing--essentially, make a loan--bankers look first at general credit rating, collateral and your ability to repay. Bankers also closely examine the nature of your business, your management team, competition, industry trends and the way you plan to use the proceeds. A well-drafted loan proposal and business plan will go a long way in demonstrating your company's creditworthiness to the prospective lender.
As we start our business, and even our business moves along, we will constantly need to concern ourselves with financing our business. Financing concerns begin with the start-up costs and then continue with business expansion and new product development. When we look for outside financing, one of the first things the investor will want to see is our business plan. Private investor, banks or any other lending institution will want to see how our plan on running our business, what our expense and revenue projections are whether or not our plans for the future are attainable with the business we have created. All of this can be answered by a well-written and thorough business plan.
...ower to wait a year or before to start to make the repayment. Somehow, some loans can be repaid at the end of the period instead of instalments. Besides, security, for example some assets and the properties of the business, is needed for the bank loan. There are three advantages in the bank loan. First, the timing and the amount of the repayment is known when getting the bank loan, so it is quite easy to budget. Second, there is also a repayment holiday, so the repayment schedule is quite flexibility. Third, the interest rates can be discussed and it can be lower than the overdraft. However, it is because the business loan is a long-term commitment, which is needed to service and this will be to high interest rate. Besides, security such as the house of the business owner is needed and this will not be good to the owner if the business is failed. (Cox, Fardon, 2009)