Unit 2 Managing Financial Resources and Decisions (GC01375)

Introduction

Clarion Antiques is a limited company which is founded by four partners five years ago. It is an unincorporated company that is growing up day by day. The key products of this company are antique products. It is now operating in London, but looking forward to opening a new branch in Birmingham. The company needs £500,000 capital to run its business. It is thinking to raise these funds by taking loans from lenders or any other sources. The company is also thinking to go stock exchange and go public to manage this fund.

This paper first defines several sources of finance for both corporate and unincorporated businesses. Then, the implication of several sources of finance is discussed. Next, the potential sources of finances for Clairton are discussed. In the second section, two sources of finances for Clairton are defined with their impact on the dividends, investment, and tax. In addition, the importance of financial planning is discussed with reference to budgeting, implications of failure to finance adequately, overtrading. Then, the information needed for financial decision-making is assessed in the case of parterres, venture capitalists, and finance brokers. The third section discusses the cash budget for Clairton and suggests them to improve their financial positions. This section also calculates the unit cost for the non-production company (Clairton) and assess the viability of two investment project using several investment appraisal techniques. The fourth part of this paper discusses the main component of financial statements and compares the format of Clairton’s financial statement with the sole trader and partnership companies. Finally, this section analyzes the financial statement of Clairton using several financial ratios.

Task 1

1.1 Identify the sources of finance available to a) unincorporated business, and b) incorporated business.

Sources of finance for an unincorporated business

According to Elliott and Elliott ( 2014), unincorporated businesses can several sources of finance to run their businesses. The key sources are personal saving, retained profit, working capital, sales of assets, loan and credit-seeking from a lender, financing from family members and relatives, and taking additional partners.

Personal saving: this is one of the fundamental sources of finance for unincorporated businesses. The owner saves money from the business or other sources and can use and invest in the business to improve its performance. The owners of unincorporated can also save and use the business and to open a new branch or maximize the businesses (Elliott and Elliott, 2014).

Retained profit: retained profit is the profit that is made from business and reinvested in the operations of businesses. The owners of unincorporated businesses can use this money to open the new branch in Birmingham. This source of finance can also be used to buy marketing and advertising, IT system, vehicles or machinery (Elliott and Elliott, 2014).

Working capital: this is called the short-term money which is collected and saved to use for daily operations such as invoice payment, salaries, stationery, bills and rent. Therefore, this source can also be effective for unincorporated businesses to run their business.

Sales of assets: the unincorporated businesses may have surplus fixed assets like machinery and building. These assets can be sold by the owners and generate money to extend the business. However, in this case, the business owners should be analysed deeply before selling the assets, because it may impact the capacity and capabilities of the business (Elliott and Elliott, 2014).

Loans, overdraft and credit-seeking: the unincorporated businesses can seek loans, overdraft and credits from the lenders. In this case, the businesses can help from the finance brokers. The source’s finances can be the short-term basis (1-2 years) or long-term basis (5-6 years) (Elliott and Elliott, 2014).

Funds from family members and relatives: the owners of unincorporated businesses can inspire their family members, relatives and colleagues to invest in the businesses. In this case, the owners of businesses can make policies and terms and conditions to use these finances (Elliott and Elliott, 2014).

Additional partners: the additional partners can be invited by the owners of incorporated businesses to maximize their businesses. In this case, the terms and conditions and policies should be developed to deal with the patterns (Elliott and Elliott, 2014).

Sources of finance for incorporated business

According to Elliott and Elliott ( 2014), incorporated businesses can several sources of finance to run their businesses. The key sources are share capital, leasing, hire purchase, trade credit, share sale to investors, retained profit, working capital, sales of assets, loan and credit-seeking from lender

Share capital: incorporated businesses can sell their share to the general public. This source can be more effective than other sources in collecting the expected amount of money the businesses need (Elliott and Elliott, 2014).

Leasing: leasing in business term work as renting machinery and/or equipment. In this case, the businesses need to pay a certain amount of payment to the leasing company, where the leasing company belongs to the property. For example, most of the incorporated businesses in the UK lease cars from leasing companies by paying a certain amount every month, but at the end of the contract, the businesses swap the card with the new models (Elliott and Elliott, 2014).

Hire purchase: incorporated businesses can hire machinery or equipment in terms of paying a certain amount on regular payments. In this case, when the payment periods are finished, the business belongs to the equipment (Elliott and Elliott, 2014).

Trade credit: incorporated businesses can seek trade credits from their suppliers for longer time periods. In general, the business gets 30-60 days for paying their bills. However, incorporated businesses try to extend these time periods to increase their financial position (Elliott and Elliott, 2014)…………………

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