Managing Financial Resources and Decisions Essay

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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 …show more content…

Credit Unions - With credit unions, the rules will be much the same as with regular banks - however, the rate of interest may be lower. 1.3 - Appropriate sources of finance Finance is needed for several purposes and different purposes need sources of finance which are most suitable to them. When choosing an appropriate source of finance some factors have to be considered. The factors that need to be considered when choosing an appropriate source of finance are: • The amount of money needed • The urgency of funds • The cost of the source of finance • The risk involved • The duration of finance • The gearing ratio of the business • The control of the business LO2 – Understand the implication of finance as a resource within a business 2.1 - The costs of different sources of finance Personal Savings – This has low costs because they are provided by the owner, partner or shareholder. The owner may charge interest for the loan provided. Retained Profits – There aren’t any other costs for this source of finance apart from opportunity cost. This is because the money could have been used elsewhere for some other purpose. Working Capital – This does not have any costs other than opportunity costs. Sales of assets – If they sell unused or abandoned fixed assets then only the potential production capacity reduces. In order

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