Managing Financial Resources


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Managing Financial Resources

  1. 1. Running Head: HND BUSINESS Managing Financial Resources and Decisions [Name of the Writer] [Name of the Institution]
  2. 2. HND Business 2 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;
  3. 3. HND Business 3 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) 4. Government grants and financial supports (
  4. 4. HND Business 4 5. Loans from Business supporting organizations 6. Business Angels sources of Finance ( national-business-angels-network) 7. Prince’s Charities 8. Community Development Finance Association (CDFA - 9. Business Financing Institutions ( 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.
  5. 5. HND Business 5 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.
  6. 6. HND Business 6 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; 1. Financial Resources Management
  7. 7. HND Business 7 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.
  8. 8. HND Business 8 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
  9. 9. HND Business 9 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.
  10. 10. HND Business 10 Conclusion
  11. 11. HND Business 11 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 on December 6, 2012