Managing Financial Resources Decision Making Finance Essay

Managing Financial Resources Decision Making Finance EssayPrefaceI switch written this designation in the first place to complete course requirement of HND 1st semester. My assignment is re juve cyphered to the subject named as Managing Financial Resources and Decision Making. I collected most information for this assignment from internet, my course book and mostly from the nones that I had collected from class lectures. Though I suffered bit difficulties in completing this assignment but it was pretty provoke and full of experience. I hope my work pass on be esteemed.ScenarioMr. Javed wants to invest 5 million in a line of descent run across in Pakistan. slightly of his friends argon go outing to invest their capital with Mr. Javed but Mr. Javed does not want to nurture coalition with aroundone.My adviceThere argon three faces of argumentes open for Mr. Javed which includes sole proprietorship, league and corporation.Sole proprietorship (one possessor)It is a form of pipeline which is run and managed by single person.Explanation It does not mean that sole proprietorship typesetters case of business ordain not have workers or assistants it may have workers or assistants. In partnership profit or loss be mammoths to the owner. In such type of business the owner of the business is taxed not the business.Advantages Such type of business is less expensive. Usually this type of business does not require a percentage of legal formalities.Disadvantages liabilities be unlimited that is personal assets can be claimed. Owner cannot leave business for long time that you cannot go for holidays etc because the business is totally interdependent to the owner. Life of the business depends upon the life of the owner.Partnership (two or more than owners)As its name indicates it is such type of business in which two or more owners are involved.Explanation partnership is basically an engagement, this can be written or verbal there is not rule from the government that agreement of partnership should be written but mostly owners prefer written agreement. In partnership business profit and loss and distributed among partners according to the agreement. In such type of business the owners of the business are taxed not the business.Advantages It does not require a lot of legal formalities. Life of the business can be certain that it depends upon the agreement and partners. Less gist of capital is require to run such business.Disadvantage Decision making is difficult in such type of business. Too galore(postnominal) conflicts may rise in such type of business. Liabilities are unlimited which federal agency that personal assets can be claimed.Corporation (company)It is such type of business in two or more than two owners are involved, it is an artificial person, companys ownership is divers(prenominal) from management.Explanation In such type of business owner is called as shareholder and shareholder provide capital for running th is business. The business is run by managers which are selected by Board of Directors and Managers. Profit and loss is distributed among shareholders, which is called as dividend. In corporation type of business, business is taxed not the owners.Advantages Owner is can be comfortably transfer by selling shares. Life of the business does not depend upon the life of the owner. Liabilities are limited, personal assets cannot be claimed.Disadvantages So many legal formalities are required to run this business. Formation of this business is really difficult. large(p) substance of capital is required to run this business. Due to retain earning shareholders confidence may loss because shareholders want more dividends.Business which I have selected for Mr. JavedKeeping in mind that Mr. Javed does not want to have partnership business. So I prefer Mr. Javed to start a business of sole proprietor because as I mentioned above it is easy to start, no legal formalities are required and less amount of capital is required. So I have come up with an idea of opening an educational get, which should provide HND (Business) and HND (Computing) in Khyber Pukhtoonkhwa Pakistan, because number competitors are less and demand is getting high-pitcheder day by day. HNDs studying formation is different and gratifying as compared to the education system of Khyber Pukhtoonkhwa. Mr. Javed pass on need more amount of 3 million for this project. There are some factors which will ensure success of this project which are discussed below. computes which are important for the profitabilityThere are different factors which clearly show that this project is worth to start and is profitable. Some factors are tending(p) below.AdvertisementAdvertisement plays great role in the success of any project before kickoff this projects people should be informed about this institute by advertising through T.V and billboards and through flyers etc. Special events of institute like parties and funfair etc should as well be advertised by various methods.Choosing locationChoosing an appropriate location is the key to the success of this project. The building should be good. Location for this project should not be in such place where reaching for pupil is hard.Class rooms of instituteClasses should be well equipped with modern technologies that is should have good prime(prenominal) multi-media, well furniture for the students etc which will satisfy and increase pursuit of students.StaffThe main thing in this project is the selecting of the staff. Mr. Javed should hire well qualified instructors. Because it teacher who run an intuition. Staff on institute should visit each class regularly, because absentees will disappoint students.Reasonable feesThis institute should have reasonable fee. At the get down institute must have as low fee as possible in order to compete competitors. Fee prices shouldnt be so high that people avoid this institute. Institute can increase fee with th e passage of time.ScholarshipsInstitute should issue scholarship to the bright students this will drag more students toward institute and there should be extra curriculum activities in institute.Sports and LibraryInstitute should be limited to studies solely there should be proper arrangement for the sports activities for the student so that they dont feel institute boring and there should well standard library in the institute which should have all the related course books and other(a) books as well.Other facilitiesInstitute must have canteen in institute which should sell neat and clean foods and beverages, there should be internet installation in institute so that students face no problem in new researches. Different parties should be arranged by the institute because parties and different seminars attract students.Task for P1Sources of finance definedBasically there are two main sources of finance versed sources of finance and external sources of finance .Sources of finance means from where to make capital (money) in order to run business. There are different sources of finance which are explained below.Internal sources of financeDefinitely before first business the owner will have some capital (money), it is not really mean cash but it also include building, machinery etc which is called as internal source. The more you have internal source less will be the burden of give on the owner. (GCSE business studies Finance and Accounting)External sources of financeIt involves sources which are not owned by the owner like entrust, government grant, and beat outow from friends, leasing, factoring etc. (GCSE business studies Finance and Accounting)Sources of finance available for Mr. JavedThere are different sources of finance available for Mr. Javed which is discussed below.Loan from BanksBanks are external sources of finance. Banks in return takes interest on loan. Bank will provide you loan on the basis of four factors.CharacterBank will analyze your pr evious record like how have you been in returning loan of taken before. You flake is checked.CollateralBanks ask security for loan that is if tomorrow you are not capable of returning loan the will take that particular thing which you provided for loan security. Example till will take legal document of land, building etc.ConditionsWhile taking loan from bank they might impost some legal condition of borrower like if you take loan from our bank you will not take loan from another bank till our loan is returned. consignmentThe bank checks the purpose of the loan. Banks will not give you loan for running illegal businesses.Banks overdraftShort loan for a short period of time from loan is called as bank over drafting. The banks do charge you some interest on it and bank may impose some of their policies.Borrowing from individualIt involves taking loan from your colleagues, friends or relative which is called as borrowing from individuals. Individual in return takes interest. Individu als may provide you loan on below factors.Loan will returned within sound time.They charge interest.FranchisingWhen a successful business gives it patent and slogan to new business. This is called as franchising. There are two parties involved in franchising which is explained below.FranchiseeFranchisee is a party who uses patent and slogan.FranchiserFranchiser is a party which provides patent and slogan.LeasingLeasing is another source of finance. It is basically a contract between two persons, lessor and the lessee.LessorLessor is the owner of the asset.LesseeA person who uses asset is called as lessee.ExplanationIt is utilize in such conditions when the person needs asset for some time and the agreement is established by lessor and lessee. There are two types of leasing.Operating leaseIt is that type of lease which is for short period of time.Finance leaseLeasing for long period of time is called as finance leasing. Lessee is supposed to be the owner of the asset till the leasin g agreement.GrantsWhen government provides asset, capital etc to our business this is called as grants. Government provides us grants when our business is helpful to union like providing employment for society etc.FactoringIt is that source of finance in which third is involved. This is called as factor organization. Basically it provides money against the security of broadsides (client debtors). Factor organization provides you capital (money) up to 80% of the invoice value. Factor organization takes control of managing invoices. Example A orders goods from B on credit. When B needs money, it will consult factor organization. So B will give its invoice to factor organization. After this B will be given 80% of the invoice then factor organization will take control of invoice.Invoice discountingConcept of invoice discounting is as same as factoring but the only difference in factoring and invoice discounting is that in invoice discounting it does not have control of managing client s invoices.Hire purchase (HP)It is also source of finance. When an individual or businesses buy goods on credit and pay money on installments is called as hire purchase. It is also consist of three parties which are.Finance managerHire vendeeSupplierHire purchase is similar to leasing, the only difference in leasing and hire purchase is that after completing installments of hire purchase you become owner of that good etc, while in leasing you do not become owner of that good etc after paying complete money.Debt securitiesSecurities are general term used for a promise to repay the debts. The company which provides security over debts is called as debentures. They are basically like a company takes loan from an individual. The company will repay the debt with interest in a certain time in the future. Both individuals and investors can use debt securities.Task for P2Advantages and disadvantages of the sources of financeThere are different advantages and disadvantages of different sour ces of finance which are discussed below.Load from bankAdvantagesBanks may provide good amount of loan on the basis of your project.Banks also provide loans for long time.If borrower pays loaned amount before due date, banks may provide borrower with discount like decrease in interest rate etc.DisadvantagesToo much cover work is required to take loan from bank.Borrower must provide security for loan.Security provided for the loan can be taken as banks property if loaned amount is not paid.If loan borrower fails to payback loan on time interest rate may be increased by the bank.Loan from individualsAdvantagesIt is simple and easily acquirable.Borrower does not need to provide security on taking loan.Lender may extend due date of paying back loan by negotiation of borrower.Personal assets can be claimed if loaned amount is not paid.Loan must be paid on time.Clashed may arise on late payment.Debt securitiesAdvantagesCompany gains a lot of profit.Investors get profit by taking interest s.In debt securities there a benefits of tax as well.DisadvantagesThe investor will have to be given interest whether the company is in loss or in profit.Investor will be given their money on the time which is fixed in agreement.Banks overdraftsAdvantagesToo much paper work is not required by taking overdrafts from bank.Bank overdraft is good for short period of time.You dont need to give bank security while taking overdrafts from bank.DisadvantagesYou can only take specific amount of overdraft which is provided by the bank.The bank may implement some of their policies like interest rate or specific time to give back over drafted amount.Bank might charge you on providing facility of overdraft.Hire PurchaseAdvantagesbuyer becomes owner of the asset after completing installments.After installments purchaser become owner of the asset.DisadvantagesUsually price of goods or assets are higher as compared to first price in hire purchase.Purchaser is not supposed to be the owner of the goo ds or assets till the completion of complete payment.If payment is not given lender can retake goods or assets back from hire purchaser.LeasingAdvantagesLessee is supposed to be owner of the leased asset or good till the leasing agreement.Lessee gets the required asset or good without paying complete amount at a time.Inflation does not affect leasing because agreement once done cannot be changed until agreement date is accurate.DisadvantagesLessee does not become owner of the leased asset or good after paying complete amount as verbalise in agreement.Leasing rates may vary after agreement is finished.Lessor does not have the right to change or to finish agreement before its finished date.GrantsAdvantagesGrants are free.Grants do not require to be paid back.DisadvantagesGrants not given without proper rules and regulations.Difficult to achieve grants because they have tough competitors.FactoringAdvantagesLarge amount of capital (money) is gained in short time.Factor organization ta kes control of clients invoices.This system helps in controlling cash flow problems and helps in maintaining good businessDisadvantagesClients usually do not like this source because factor organization will take payments from them.Factor organization charges interest and fees on providing services.Privacy becomes nil because clients invoices becomes invoices of factor organization.FranchisingAdvantagesFranchisee does not need to spend money on advertisement and promotion.Franchisers cannot make another franchisee, where one franchisee is situated.Franchisee does not need to worry about customers because franchiser already has customers.DisadvantagesIt is quite expensive.Franchisee will run business as guided by the franchisors.Franchisor might stop doing business in the future.Task for P3Sources of finance which are viable for Mr. JavedMr. Javed will need finance of rupees 3 million more because in order to make this project successful Mr. Javed must have good amount of capital. . Plus Mr. Javed will need to take a building for institute will damage too much money. There are different sources of finance available for Mr. Javed, but most feasible sources for this project areBank loanMr. Javed will need more amount of 3 million so the best source can be bank. Because banks offer loan for long time.LeasingLeasing is important for Mr. Javed because for this project land (building) is important so buying building will cost Mr. Javed a lot so instead of buying building its better to lease building.Task for M1Justifications and implications of advised sourcesBank LoanBank provides loan of large capital (Money).Loan can be taken from bank for long period of time.If the project earns profit by giving loan back to bank before due date Mr. Javed can get discount as well.Once you start relationship with bank, bank can further help you with more amount of money.Bank might offer Mr. Javed for partnership which will take place by will of Mr. Javed.Bank also provides discou nt in interest rate by paying loaned amount before due time.LeasingIt will be cheaper as compared to buy building for the project.Leasing is easily accessible. Building for leasing can be found everywhere Mr. Javed wants.If Mr. Javed earns profit if he wants to buy the leased building he can but this will take place after the will of lessor.Instead of buying building leasing is better because if Mr. Javed wants to shift his institute to somewhere else he would easily do that without having tension of selling bought building.