The paper 'Managing Financial Resources ' is a great example of a Finance and Accounting Case Study. This paper looks at analyzing the different sources of finance and the manner in which it helps in financial planning. This will help the business to make different financial decisions and will help to provide a framework based on which important financial decisions will be taken. This will help to deal with the different areas through which business strengths can be improved and will help to improve the overall quality of managing a business. Different sources of finance for business Businesses to finance their needs can look towards different alternatives so that the financial needs of the business are satisfied.
Businesses can look towards either short term finance or long term finance depending on the needs and requirements of the business. The different sources of short term finance for the business is as Bank Overdraft: Businesses can borrow money from banks for a period of time which is usually less than a year through a process of bank overdraft. Banks charge an interest rate on the over-borrowed sum. Trade Credit: Businesses purchase goods on credit and pay the suppliers after a period of time which is usually less than a year and is able to finance the business needs.
It is normally seen that suppliers give their business partner a certain period of time to pay the dues on the goods purchased and usually no interest is charged on it. Leasing: Businesses to meet their needs obtain different assets on lease and pays the lease amount on it. The business doesn’ t become the owner of the asset but is able to use the same for a period of time which is determined at the time of entering into the contract and can use the asset to generate future revenues for the business thereby providing an opportunity to finance the business (Binks, Ennew & Reed, 2002) Bank Loan: Businesses also take short term loans from the banks which are for a period of less than one year and pays interest on the borrowed sum.
This mechanism helps to provide the required liquidity that the business is looking for. The different sources of long term finance areas Equity: Businesses look to raise long term capital through the issuance of shares and raising money from the public.
This is a long term source of finance and helps the business to make arrangements for the required infrastructure. Debentures: Similarly like equity shares businesses raise money through the issue of debentures. Debentures carry a fixed rate of return which needs to be paid and the principal is paid after a fixed interval of time Bank Loan: Businesses also take long term loans for the business to meet their different long term needs and pays interest on the borrowed sum.
This is a good source for business as the interest on bank loans is charged against profits thereby helping to save on taxes. The implication of different sources of finance The implication for the different short and long term finance areas Short Term Finance: This finance needs to be paid off within a year and is normally used to finance short term needs of the business. This form of finance helps the business to carry out their daily activities and ensures that the business is able to meet its daily needs.
The short term finance is normally available after the business has become operational and helps the business to manage their working capital needs. Long Term Finance: This finance needs to be paid off after a year and is normally used to finance the long term needs of the business. This form of finance helps the business to carry meet its infrastructural needs and provides the required capital based on which the business can be developed (Wickham, 2006). The long term finance is available both before the business has become operational and after it has become operational and helps the business to manage its infrastructure capital needs
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Binks, M., Ennew, C., & Reed, G. (2002). Information Asymmetries and the Provision of Finance to Small firms. International Small Business Journal, 11, 35-36
Cosh, A., & Hughes, A. (2000). British enterprise in transition: growth innovation and public policy in the small and medium sizes enterprise sector 1994-1999. University of Cambridge, Cambridge
Carey, D., & Flynn, A. (2005). Is bank finance the Achilles’ heel of Irish SMEs? Journal of European Industrial Training, 29(9), 712-729
Drever, M. F. (2006). Determinants of Liquidity for Australian Small and Medium-Sized Enterprises (SMEs). University of New England, Armidale
Wickham, P. (2006). Strategic Entrepreneurship. New York, Harlow: Financial Times Prentice Hall.