managing financial resources

Running Head: HND BUSINESS

Managing Financial Resources and Decisions

[Name of the Writer]

[Name of the Institution]

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Managing Financial Resources and Decisions

Introduction

Everyone has an ambition in their lives and individual struggles for pursing it and

creates their names. In the same way, I have also an ambition to run my own Mexican

Restaurant that will not only offer healthy food to eat but also at reasonable prices. The

initial investment will be £110,000. My core focus will be on minimizing the investment

cost.

A description of the business you are considering setting up.

An indication of how much money/investment you would need.

A discussion of the possible sources of finance available to a business

Description of the Business

Starting a restaurant business is not an easy task, as there are number of restaurants

that have been opened and these restaurants compete with each other incredibly. I

decided to run Mexican food restaurant which will add a different dishes of food to the

traditional foods menu and it will cater superior quality food. The restaurant business is

notoriously tough as it requires huge number of operations in it to be carried out. Initially

I will open a restaurant on rent. In the restaurant, I will do investments or preliminary

expenses in the following areas;

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Approximate costs

Item of expenditure Cost

Spending on specialist equipment: £35000

Spending on general business equipment: £20000

Spending on office fittings: £6330

Spending on security measures: £5610

Spending on signs: £6760

Spending on staff facilities and their salaries: £10000

Spending on vehicles: £33800

Other costs: £21000

Total expenditure: £138,500

The total Investments will be £150,000 approximately as it will cover the other costs

which may include the certification cost and getting license for running. The Working

capital will be the stocks needed by the business e.g. Raw Materials, Allowance for

amounts that will be owed by customers once sale of Mexican restaurant begins and

the Growth and development (e.g. extra investment in capacity). The possible sources

of finance available to a business are;

1. Personal Finance

2. Family and Friends Financial Support

3. Banks (Business Overdrafts, Term Loans)

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4. Government grants and financial supports (www.grantfinder.co.uk)

5. Loans from Business supporting organizations

6. Business Angels sources of Finance (www.businessangelnetwork.co.uk/

national-business-angels-network)

7. Prince’s Charities

8. Community Development Finance Association (CDFA -

www.findingfinance.org.uk/)

9. Business Financing Institutions (www.businessfinanceforyou.co.uk)

These are the sources of finance that are available for running Mexican restaurant.

Sources of finances and control of the Business

Sources of finance influence the business operations to a great extent. It is very

convenient to acquire the funds but once the business do not operate as per planning

the influence and the pressure of acquired resources increase to an alarming state. The

cost of funds and their burden incredibly disturb the business operations.

Fundamentally, business may acquire funds either from debt financing or equity

financing. The cost of equity financing is dividend payments which mean less retained

earnings. If a business goes for the option of debt financing the cost of debt financing

will be interest payment which means less operating income and high leverage.

Therefore, the control of the business will go into the hand of creditors. The correct mix

of the financial structure will be beneficial for the business. When start up businesses is

initiated, the absolute financial structure will result the success of the business.

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Advantages and disadvantages of the different sources of

finance

Personal Savings and Assets

Personal savings and other assets are a very great source of capital, because it

will not cost anything. Acquisitions cost are minimum. There will be no interest or

principal payments. The disadvantage of personal investment is that it may get dissolve.

Bank Loans

Bank loans can be another good source of funding for the small business. The

core advantage of borrowing is that it enables us to keep our cash on hand and use it

as operating capital for the down period of the business. If the situation of the business

is not good, bankruptcy can be declared for saving most personal assets. One of the

peak disadvantages to bank loans is that they are very tricky to obtain unless a small

business has a considerable track record or valuable collateral such as real estate. The

disadvantage of acquiring bank loan is interest payment which will increase the

leverage of the company and loan payment will become due unless its full amount is not

paid. Interest rate for bank loans is usually high for the start up business.

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Sources of finance for Mexican Restaurant

For my start up business, I have selected three sources of finances. These are

personal financing, acquiring bank loans and family and friend supports. As the cost of

financing is one of the major factors that hinders the business operations as the control

of the business is mainly affected. Therefore, I have decided to invest my own capital up

to fifty percent, as I have been collecting funds separately for this purpose. The

remaining fifty percent I have divided into two sections of twenty five percent each.

Twenty five percent I will gather by acquiring loan from banks and remaining twenty five

percent will be invested from one of my cousins who will be my partner in this business

opportunity.

Cost of Funds for Mexican Restaurant Business

The loan which I will be acquiring from bank, I will have to pay interest payment

on it. As long as I am a having a partner it will be a cost for me because I will have to

share the twenty percent of the profit with my cousin. My personal investment will also

be invested due to which I will have to face the opportunity cost.

Financial planning

Financial planning is a systematic approach in which financial manager plans for

maximizing the existing financial resources by managing the financial resources and

estimating the capital required. It is about framing the financial policies in relation to

procurement, investments and administration effectively and efficiently to achieve the

financial goals.

The major components include;

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1. Financial Resources Management

2. Application of Financial Tools

3. Setting of Financial goals

Significance of Financial Planning

Financial planning is one of the significant aspects for any of the businesses to

achieve its financial goals. Organizations place tremendous attention towards financial

planning because it gives a route map for attaining the financial objectives and securing

the business sustainability. Financial planning determines the capital requirement for

the business. It elaborates the appropriate capital structure and frames such effective

financial policies so that available resources can be utilized efficiently and effectively.

Financial planning assists in finding out the reasonable balance in between the

inflow and the outflow of the funds. Financial planning assists in making growth and

expansion plans which assist in sustaining the organization. Financial planning assists

in reducing the uncertainties which can become a hindrance for the growth of the

company.

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Decision Making in an Organization

Decision making in an organization is very common but the nature of decision

ensures the successfulness in an organization. Successful organization are very

concerned about its decision making approach. The cross functional department and

their contribution in the decision making is exceptionally significant. The upper

management and the middle management these are the two levels of management

which are highly participating in the decision making process.

The information that is needed by the upper and middle management can be

different for instance if the expansion of the organization is being decided either to

invest in the new strategic business unit or not, Information will be required accordingly.

Foe example the financial position of the company will be analyzed, nature of new

strategic Business unit will be analyzed, Viability of the projects will be affirmed etc.

The nature of decision will define the requirement of the information if the

decision is about something big, Management will be requiring the information

accordingly. Generally, Board members, Financial Heads, Marketing Heads, human

resources head and operations management heads are group together for arriving at

any of the decision which will be in favor of the organizations.

Impact of Sources of Finance on Profit and loss Account and Balance

Sheet

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The Sources of Finance which I selected for Mexican Restaurant management

are Personal Financing, acquiring of bank loan and the partners assistance. The impact

of acquiring bank loan will create a debt burden for the new start up business as interest

will be paid on these loans along with principle amount in a specified period of time. It

will decrease the profitability of the business due to interest payment. The bank loan will

increase the liabilities of the balance sheet. Personal Investment will strengthen the

financial position of the business as this will be the equity of the business. The another

source of finance is twenty five percent of the cousin’s capital which will again

strengthen the financial position of business but profit will be shared as per agreed

percentage therefore, it will decrease the retained earnings of the business. The bank

loans and the personal investments will give a great start to the business as this amount

will be capitalized by acquiring assets and later on generating the profits.

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Conclusion

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References

Barlow, S. E. and Dietz, W. H. (1998) Obesity evaluation and treatment: Expert

committee recommendations. Pediatrics vol. 102 pp. 222–228, Data retrieved

from http://pediatrics.aappublications.org/content/102/3/e29.full on December 6,

2012

http://www.investopedia.com/terms/f/financial_plan.asp