Finance as a Resource - Assignment Example

Sources and uses of finance A fresh and unconventional view of how the society running will reveal a very important micro level fact. It is about the society and its thoughts of its own movement, which is commonly presumed as the Government, running its state; that is the society. Though it has got a great deal of responsibility to roll and steer the society, how it will do so without any mean? To be clear about the matter, it needs to be understood that the greatest of all means is the revenue that is again collected from the society. Now this revenue is a collective mechanism of the society whose sole levers and gears are the different types of business and its organisations that are generating these revenues at a higher interest. But it is to remember that money multiplies money; and then who is sourcing these revenue generating businesses to expand their own operations and other developments. This paper will through light on the sourcing and the using issues of the finance and the business finance respectively. The field of finance refers to the concepts of time, money and risk and how they are interrelated. The term finance may thus incorporate any of the following studies; like the study of money and other assets, the management and control of those assets, profiling and managing project risks, the science of managing money, the industry that delivers financial services. As a verb, "to finance" is to provide funds for business or for an individuals purchases it becomes the act of lending money to a party to meet its requirements. Though the financer receives interest, the borrower pays a higher interest than the financer receives and the financial intermediary that is the financer itself pockets the difference (Jones 2002). This is the simple structure of financing and the glory of this business. A specific example of corporate finance is the sale of stock by a company to institutional investors like investment banks, who in turn generally sell it to the public. Finance is used by individuals and creates personal finance, by governments as public finance, by businesses that is the corporate finance and as well as by a wide variety of organizations including schools and non-profit organizations. In general, the goals of each of the above activities are achieved through the use of appropriate financial instruments, with consideration to their institutional setting (Beaney 2005). This is where the finance plays the role of a resource. Finance is one of the most important aspects of any business management. Without proper financial planning a new enterprise is for sure unlikely to be successful. Thus, it is important to understand the power of finance as resource. It is one of the most powerful tools in any business or organisation. In reality, it is the back bone of all the concern as it supports any activity in the organisation at any given moment. From present operation to future development, anything and everything is coming under the effect of this tool. When good things are of prime desire; the only answer could be; good things cost money. And here comes the finance, which is the money available to spend on business needs. Right from the moment someone thinks of a business, there needs to be cash. As the business grows there are inevitably greater calls for more money to finance expansion. It is a never ending process the day to day running of the business also needs money. Depending on the type of business, it will need to finance the purchase of assets, materials and employing people. As a business grows, it needs higher capacity and new technology to cut unit costs of production and keep up with competitors. New technology can be relatively expensive to the business and is seen as a long term investment, as the costs will outweigh the money saved or generated for a considerable period of time. In fast changing markets, where competitors are constantly updating their products, a business needs to spend money on developing and marketing their own new products e.g. to do marketing research and test new products in pilot markets. These costs are not normally covered by sales of the products for some time, making it clear that finance is the most important resource of any business as by the law of market it is the life blood of the business to keep going (GCSE Business Studies 2008). Apart from external finance company talks about the internal finance too. It gives the reality of the organisation’s fiscal health depending on which the concern can decide buyout and sellout power for that financial year. The only instrument to express this internal finance is the financial statements that provide an overview of a business financial condition in both short and long term. There are four basic financial statements: Balance sheet, Income statement, Statement of retained earnings and Statement of cash flows (International Accounting Standards Board 2007). The objective and the importance of financial statements is, they provide information about the financial strength, performance and changes in financial position of an enterprise that is useful to a wide range of users in making economic decisions (International Accounting Standards Board 2007). Financial statements should be understandable, relevant, reliable and comparable as in reflecting the internal finance the statement becomes the external and tool for stake holders and other knowledge seekers. Like there are different kinds of financial statements and sources, there are wide range and type of organisations. To name a few, sole traders, partnership and private limited companies are the ones most in vogue. Some businesses can be more profitable, easily administered & less bureaucratic, and encumbered by less legislation. By remaining a sole trader instead of becoming a limited company will give the freedom of time, space and opportunity to be ones own boss. Though businesses feel safer dealing with limited companies, things are more organized in limited companies, employees dont like working for non-limited companies and of course one will have no debts with limited liability etc.; but that remains just illusion for limited companies will have its own point of view with a purpose of its own (bizhelp24 2008). Coming to private limited company the main reason for the small business owner to become a limited company is the Limited Liability afforded to its directors. This reason is closely followed by the Perception of having Limited after the name as being desirable. It is also believed that Credit; be that from the bank or suppliers, will more readily be offered to limited companies. This nullifies the troubles of getting credits, specially the formalities of business financing. But in this case one must be willing to bear the burden of big infrastructure and to handle more complex strategies and higher risk factors. But there is a middle path where the authority and the responsibility can be divided among more than one person. Where two or more people start a business where neither is considered as employees i.e. both are owners; the legal entity of Partnership is assumed. Being, both partners are jointly liable for all debts and actions of the business i.e. what one partner signs for in the name of the partnership, the other(s) shall be equally liable by law. It is therefore crucial that all decisions or voting are equal, irrespective of the ratio of capital invested. Partnership is limited also where limited partners make investments but do not run the business (bizhelp24 2008). Here, with different kinds of organisation it is important to identify different kind of financing sources. Broadly there are two different sources; internal and external sources and they are typically associated with particular kind organisations. Internal Sources are traditionally, the major sources of finance for a limited company. Some selected types are Personal savings, Retained profit, Working capital and Sale of assets. Where as in External Sources, Ownership Capital In this context, are the owners refers to those people or institutions who are shareholders. Sole traders and partnerships do not have shareholders - the individual or the partners are the owners of the business but do not hold shares. Shares are units of investment in a limited company, whether it is a public or private limited company. Shares are generally broken down into two categories: Ordinary shares and Preference shares (bized 2008). A public limited company is a different ball game where the company has a share capital whose memorandum of association defines it to be a public limited company (PLC). The shares of PCL can be offered for sale to the general public. The minimum number of shareholders must be two The authorised share capital must be a minimum of £50,000 of which 25% is paid up i.e. £12,500 must be placed in a bank account for the shares A PLC is not entitled to commence business or exercise any borrowing powers until the Registrar of Companies has issued a certificate of compliance with the capital requirements as set above Accounts must be filed within 7 months of the year end The Company Secretary must be a qualified person i.e. a Chartered Secretary, Chartered or Certified Accountant, Solicitor of such other qualified person The minimum number of Directors is two So, above are the commandments of a PCL. This kind of organisation generally uses both the internal and external financial resources where it is preferable for organisation type to go for the external type of the resources of finance for its long term fiscal effects (M & N Group Limited 2006). In a way a PLC is a kind of larger picture of a partnership business. Issues are measured and certified among the members and the mass public has got a special place. This kind of organisation seems to sync with the society better than the others. In nutshell, finance has built its foundation across the organisation type and has also earned the reputation of being the organisational back bone. In fact, starting from individual to organisational level for any initial expansion or large scale development finance has always been a catalytic accelerator to boost to the objective attainment provided other strategic and logical setups are in place to avoid the apathy of disinvestment. Considering finance itself, its usage to different organisation, different types of sources and acting individually with the entire different sub issues have made it an inevitable thing in the study of business. Though the subject does not know any good or bad but steer by the logic of right or wrong alas saves a person or a concern from perishing. Like wise to retain the market companies need continuous up gradation. And these up gradations mean lot of money which can hamper an organisation’s daily operation and short term objectives if the fund is taken out from the organisational treasury. And when the initiatives are larger than life, Business Finance comes to the gig. References Beaney, S 2005, “Defining corporate finance in the UK", The Institute of Chartered Accountants, UK. bizhelp24 2008, Sole Trader or Limited Company?: A Company, Viewed 16 August 2008, . bized 2008, Sources of Finance, Viewed 16 August 2008, . GCSE Business Studies 2008, Why businesses need finance, Viewed 16 August 2008, . International Accounting Standards Board 2007, "The Framework for the Preparation and Presentation of Financial Statements", Viewed 16 August 2008, . Jones, K 2002, "The Finance Function Knocks at Your Door", Intelligent Enterprise, Viewed 16 August 2008, . M & N Group Limited 2006, WHAT IS A PUBLIC LIMITED COMPANY?, Viewed 16 August 2008, . Standards Board 2007, "Presentation of Financial Statements" Standard IAS 1, International Accounting, Viewed 16 August 2008, . Read More