Managing Financial Resources and Decisions
Table of contents
Introduction2
Understand the implications of finance as a resource within a business 2
Introduction
In this essay I will be discussing and understanding of where and how to access sources of finance for a business, and the skills to use financial information for decision making.
Finance is essential for a business’s operation, development and expansion. Finance is the core limiting factor for most businesses and therefore it is crucial for businesses to manage their financial resources properly. Finance is available to a business from a variety of sources both internal and external.
LO1 – Understand the implications of finance as a resource within a business
Internal Sources of finance
Internal sources of finance are the funds readily available within the organisation. Internal sources of finance consist of:
• Personal savings
• Retained profits
• Working capital
• Sale of fixed asset
Personal Savings - This is the amount of personal money an owner, partner or shareholder of a business has at his disposal to do whatever he wants. When a business seeks to borrow the personal money of a shareholder, partner or owner for a business’s financial needs, the source of finance is known as personal savings.
Retained Profits - Retained profits are the undistributed profits of a company. Not all the profits made by a company are distributed as bonuses to its shareholders. The remainder of the profits after all payments are made for a trading year is known as retained profits. This remainder of finance is saved by the business as a back-up in times of financial needs and maybe used later for a company’s development or expansion. Retained profits are a very valued and no-cost source of finance.
Working Capital - Working capital refers to the sum of money that a business uses for its daily activities. Working capital is the difference of current assets and current liabilities (i.e. Working capital = Current assets – Current
Introduction2
Understand the implications of finance as a resource within a business 2
Introduction
In this essay I will be discussing and understanding of where and how to access sources of finance for a business, and the skills to use financial information for decision making.
Finance is essential for a business’s operation, development and expansion. Finance is the core limiting factor for most businesses and therefore it is crucial for businesses to manage their financial resources properly. Finance is available to a business from a variety of sources both internal and external.
LO1 – Understand the implications of finance as a resource within a business
Internal Sources of finance
Internal sources of finance are the funds readily available within the organisation. Internal sources of finance consist of:
• Personal savings
• Retained profits
• Working capital
• Sale of fixed asset
Personal Savings - This is the amount of personal money an owner, partner or shareholder of a business has at his disposal to do whatever he wants. When a business seeks to borrow the personal money of a shareholder, partner or owner for a business’s financial needs, the source of finance is known as personal savings.
Retained Profits - Retained profits are the undistributed profits of a company. Not all the profits made by a company are distributed as bonuses to its shareholders. The remainder of the profits after all payments are made for a trading year is known as retained profits. This remainder of finance is saved by the business as a back-up in times of financial needs and maybe used later for a company’s development or expansion. Retained profits are a very valued and no-cost source of finance.
Working Capital - Working capital refers to the sum of money that a business uses for its daily activities. Working capital is the difference of current assets and current liabilities (i.e. Working capital = Current assets – Current