Sources of Finance Essays

Sources of Finance Essays Sources of Finance Essay Sources of Finance Essay Source of finance Match the source with advantages and disadvantages State if advantage/disadvnatage ordinary share capital: money given to a company by shareholders in return for a share certificate, which gives them part ownership of the company and entitles them to a share of the profits 21 . lncreasing ordinary share capital can make it easier to borrow more funds from a bank as the share capital can purchase assets that can be used as collateral. advantage 22. Bringing new shareholders into a small business often means that further expertise is brought into the business. vantage 3. 0rdinary share capital is permanent † the business does not need to pay it back advantage 17. As the business grows, the percentage shareholding of the original owner(s) will probably decline. This can ultimately lead to a smaller share of the profit and even a loss of control of the business. disadvantage 28. They are generally cheaper than other sources 20. 1n profitable years, ordinary shareh olders will expect high dividends. disadvantage 12. The original aims of the business may be lost due to having too many shareholders disadvantage . t is not necessary to pay shareholders a dividend if the business cannot afford it venture capital: finance that is provided to small or medium-sized firms that seek growth, but which may be considered risky by typical share buyers or other lenders. . 2. It is possible that venture capitalists will exert too much influence, so the original owner may lose his/her independence. disadvantage 10. Venture capitalists will sometimes allow interest or dividends to be delayed 19. 1n return for the high risks, venture capitalists will often want high interest . Venture capitalists will often want a significant share of the business. 1 . lt is useful for high-risk firms that are unable to get finance. advantage 14. Venture capitalists will often provide advice too personal sources of finance: money that is provided by the owner or owners of the business from their own savings or personal wealth 1 5. There may be insufficient funds available 9. They may be the only option possible. 23. Security is not usually required. 6. They can cause family tensions They allow the owner to keep control. . They may cause stress for the entrepreneur bank loan: a sum of money provided to a firm or an individual by a bank for a specific, agreed purpose. 16. The size of the loan and the period of repayment can be arranged to match the exact needs of the firm. advantage 4. 1nterest rates are normally lower because of the security provided. advantage 1 1 . There is less flexibility in a bank loan, so the business will tend to pay interest for the agreed period, e ven if it gets into a position where it can pay off the loan early. 27. is more expensive than alternatives such as personal finance. 26. The interest rate and thus the repayments are fixed in advance, making it easy to budget the schedule for repayments. advantage 25. The size of the loan may be limited by the amount of collateral that can be provided rather than by the amount of money needed by the business. disadvantage bank overdraft: when a bank allows an individual or organisation to overspend on a current account held with the bank up to an agreed (overdraft) limit and for a stated time period 18. The decrease in demand for goods and services as resulted in the closure of many small businesses in the UK. During the first 5 months of 2009, there was a 52% rise in the number of small businesses filing for commercial bankruptcy. According to the Automated Access to Court Electronic Records (ACER), there were 36,103 filings compared to 23,829 this time last year'(AsaGhaffar,2010). As I stated earlier the economy has begun to show signs of a recovery but Banks remain sceptical of the future of small firms. In order to maintain the current state of growth, further business activity is needed this will require banks to loan more money to firms. However, this has not been the case. A recent article states In a survey of 1,045 directors, the Institution of Directors found that 60% of businesses are being turned down for credit by the banks despite repeated claims made by UK lenders that they are fulfilling demand for loans (Lucy McCann, 2010). In addition, an increasing amount of firms have been refused overdrafts. This may be a result of the increase in loan guarantees and securities required by the Banks and the reason why banks are sceptical about the future of small businesses. Working Capital can be defined as the day to day finances needed to run a business- generally seen as the difference between the values of a firms current assets and its current liabilities.(I.Marcousà ¯Ã‚ ¿Ã‚ ½, 2008). Efficient working capital management involves ensuring there is sufficient cash available to meet the cash requirement at any one time. In a business operation working capital is highly important. Irrespective of the firms size insufficient working capital is the commonest cause of business failure (I.Marcousà ¯Ã‚ ¿Ã‚ ½, 2008). In preparation for a fall in demand effective working capital becomes even more important for small firms. During a period of falling demand consumer will save more and buy less goods and services this will result in a decrease in sales revenue for many small businesses such local restaurants, pubs and small shop owner. In time small firms will begin to experience a shortage of cash or working capital due to falling revenue and may not be abl e to purchase as much stock or pay bills on time. In such a situation like falling demand and revenue small firms will have to make drastic changes to their working capital and reconsider their source of finance. During an economic downturn many small firms are likely to experience rapidly decreasing revenue and problems with their working capital. In addition, the more conventional source of finance such as a bank loan or an extension on the firms banks overdraft may become difficult to attain as banks will be aware of the dilemma facing firms and may require more guarantee for their money. Therefore small firms will have to consider alternative sources of finance. Trade credit is a possible alternative source of finance for a small firm. Defined as when suppliers agree to accept cash payment at a given date in the future (I.Marcousà ¯Ã‚ ¿Ã‚ ½, 2008).This is possibly the cheapest finance option available as it cost the business nothing to arrange such an agreement. Trade credit will allow the firm spend their already declining capital on other aspects of the business operation in order to accommodate for the falling demand. For example a local restaurant will be able to pay their electrical and water bill allowing them to continue operation. However, during a period of falling demand the future of a small firm may not be certain an as a result there is a risk the firm will not be able to pay suppliers when the time comes and this could damage the relationship between the firm and supplier and mitigate chances of attaining trade credit in the future. In addition, the chances of obtaining trade credit will be low considering the possibility that falling demand will also affect competitors and as a result they may also try to attain trade credit thereby creating heavy competition. A small firm may consider debt factoring as an alternative source of finance. Debt factoring is when A business sells its outstanding customer accounts (those who have not paid their debts to the business) to a debt factoring company (tutor2u). The possible advantages are; the firm will be able to raise cash quickly and will no longer have to continue chasing there debtors this will save them t ime and resources. However, firms will have to sell their debt at a loss. This will negatively affect the profit of a firm. Furthermore, in a period of falling demand debtors are likely to default and this will make it difficult for firms to sell their debts. Stocks are the organisations assets in the form raw material, work in progress and finished goods, in order to make best use of warehousing facilities and stockholding costs (J. Sutherland and Diane .Canwell, 1995). There are 3 different types of stock. Raw materials and components are stocks purchased by the business from outside suppliers. Work in progress, these are stocks which are incomplete as they are still in the production progress, for example a car chassis on a convey belt in a factory. Finally, finished goods are stocks which are held by the firm for a period of time until they are sold. This may be due to numerous reasons such as; the products are seasonal or the firm only sell products in batches ( I.Marcousà ¯Ã‚ ¿Ã‚ ½, 2008). In an economic downturn a small firm will likely experience falling demand and at this point consider the possible advantages and disadvantages of reducing stock. If a small firm is to reduce their stock they will require less storage space and a s a result save money allowing them to spend it on other aspects of the operation. Furthermore, a smaller stock increases the liquidity of the firm. Less stock increases the chances of the firm selling all their products thus making them more liquid, thus enabling the firm to gain short term cash quickly which is highly important in an economic downturn as demand falls and revenue drops. In addition, the cost security will be less. The less space consumed will require less security personal to monitor. Conversely, by reducing stock a small firms risk losing their competitive advantage. If the economy was to suddenly recover and demand begins to rise for goods and services the firms may not be able to meet the sudden demand. In such a circumstance a firm may lose future customers to competitors who will be able to meet demand. In the long term this will have a negative impact on sales and could eventually lead to bankruptcy. Reducing stock may be beneficial in a period of economic downturn but the ability for a firm to reduce the stock may depend on the type of business. For example, in comparing a local store to a small building firm the difference in reducing stock can be seen. In order to reduce stock a local store could simply offer discounts to customers which will increase the demand for the goods and thereby allow the shop to get rid stock quicker. In addition, most of the stock are finished goods and as a result are ready to sell as soon as they arrived. On the other hand a, building firm hold stock such as sand and cement and tools which are mostly raw materials and work in progress and vital to their operation and as a result cannot be sold to the customers in a period of falling demand. It can be argued; depending on your business reducing stock will be beneficial for a small firm as it reduces cost in terms of storage space and security, also allows the firm to accommodate for the falling demand resulting from the economic downturn. However, from my perspective debt factoring will be the best course of action for a small business during a time of falling demand. In an economic downturn there is likely to be high unemployment and as a result falling demand thus reducing the circulation flow of income. Consumers will have less cash available and this means there is a greater chance of individuals not paying their debts on time or even defaulting. For this reason, assuming the firm has debtors, firms which require a short term form of finance will want to consider debt factoring. Seeing as it is likely debtors will not pay on time or at all it will be greatly beneficial for the firm to sell off their debts. Although a firm are selling at a loss and may face difficulty selling the debts in an economic downturn as debt factoring company will also be aware of problems facing debtors, if possible it will provide the small firm the capital they need to finance their operation, thereby giving the firm a better chance of surviving the economic downturn. In addition, survival should be the likely objective for any small firm in such a period.

A Reedsy Success Story Matt Biebers Life in the Loop

A Reedsy Success Story Matt Biebers Life in the Loop A Reedsy Success Story - Matt Bieber’s Life in the Loop We launched Reedsy 6 months ago. Since, we’ve had an incredible amount of authors working on a daily basis with our fabulous editors, proofreaders, designers and illustrators. But we haven’t really followed up on their success. So when Matt Bieber dropped us a line to thank us and tell us about his book, we thought we’d give him a spot on our blog!  My name is Matt Bieber, and I’m the author of Life in the Loop: Essays on OCD. The essays in this collection are an effort to come to grips with life as an obsessive-compulsive. Some of them deal with big, dramatic stuff – sex, religion, death – while others are about the million mundane-but-excruciating facets of OCD.Writing about this stuff is helpful to me, but publishing is always a challenge. I’m fairly tech-illiterate, and my forays into the blogosphere have provided OCD with endless freak-out opportunities: â€Å"Did I save those changes on WordPress? Why does it keep formatting that way? Is this post even gonna be legible if readers re-size their browsers?† And so on, forever.When I decided to collect my OCD writing into book form, then, I knew that designing a cover and an interior layout were way beyond me. â€Å"If I just stick to the writing and let a pro handle the rest, this’ll be doable.†I shared my plans with a friend, and he pointed me toward Reedsy. (He’d been a fan of Reedsy’s own design for some time.) I agreed to check it out, but I was nervous; was this gonna be yet another frustrating, overwhelming platform, a web world with nonsensical navigation and no way out?Merely arriving at the site, then, was a relief. It was straightforward! And kind of pretty! And you could find stuff! After a long print publishing career, Jason knows how to work magic with fonts, headers, and spacing. In just a couple of weeks, he turned my Word manuscript into a beautifully laid-out volume.The one glitch in the project, however, was that Jason didn’t know how to make an e-book. (He’d told me this from the outset, and we’d agreed that he’d explore it as we moved along). As he discovered, though, creating an e-book isn’t just a matter of converting file types: in his words, it’s a bit more â€Å"like designing web-pages; it’s a different animal altogether.† Thankfully, Jason was willing to call a buddy named Mick in Scotland, who handled the final conversions. (Thanks Mick!)Here was the best part: Jason didn’t treat my book any differently than those of his higher-profile clients. At every stage of the process – from our first contacts in mid-December through completion and publication at the end of March  œ Jason was incredible: professional, responsive, and straight-up cool. He anticipated my questions, took stuff off my plate before I even realized it was bothering me, and stayed patient through a long series of tiny edits and adjustments.The pace of the process varied: sometimes, we each retreated to our tasks for a week or two. Other times, we exchanged several emails per day. And at a certain point, it dawned on me: he cared – about the book, about the process, and about me. Instead of chasing down some elusive freelancer, I was working side-by-side with a generous partner.So it was the journey, then – but it was also the destination. Because at the end of the process, we had this book in our hands (and on our Kindles) – this thing that, by some miracle of text and color, reflected the hazy vision that had been floating around my brain for so long.So now the sucker’s up on Amazon and selling nicely, and the reviews are starting to come in. This feels great, of course – but it feels even better to know that my work with Jason will help this little volume reach folks who can really use it.Matt Bieber is the author of Life in the Loop: Essays on OCD. He blogs at mattbieber.net and coaches young writers.Learn more about book layout design and book cover design on Reedsy's design page.Read our other success stories here!