Managing financial resources and decisions Essay

Managing financial resources and decisions - Essay Example Broadly, the types of sources of finance are divided into two categories namely: 1. Internal sources of finance 2. External sources of finance Different types of business have different sources of funds. The most common types of business are: sole trader, partnership, public limited company, and private limited company. Sole Trader: This form of business consists of one individual owner who is legally not disconnected from the business. But the company and personal accounts are separated. The internal sources of funds for this type of business only include the sale of the goods and stocks. This source of finance is short term as the money from sales of goods is first used for covering the operating expenses of the company (Arnold, 2008). On the other hand, the external sources of finance available to sole trader consist of different loans from banks or venture capitalists. This also includes secured loans, leases, and grants from government. The sale of the goods and stocks is only b eneficial in the short term, however the loans from banks can be beneficial for the sole trader for long term financing. The venture capitalists demand for high interest rates (Gitman, 2003). ... Private Limited Company: In this form of the business, the shares of the business are sold on private basis only by the consent of the board of directors. This type of business is normally popular for the family businesses. The organisation has control over the distribution of the shares and can decide who can own the shares of the company. Private limited company has more long term internal sources of funds. The company can sale the shares and also assets in order to raise finance. Along with this the directors of the company can also decide to issue new shares. The external sources of funds available for the private limited company includes: debentures, loans from banks, grants from government, and also funds from venture capitalists (Khan, 1993). The internal sources of funds like sale of shares can result in diluting the ownership of the organisation. The grants from government can be beneficial for long term financing (Gitman, 2003). P2: IMPLICATIONS OF THE DIFFERENT SOURCES OF FINANCE: Different sources of finance have different implications associated with them. For instance, the option of issuing new shares for the private limited company can result in diluting the ownership of the organisation. Also, different external sources of finance have different implications and influence on the business. All external sources of finance results in increasing the short term and long term liabilities of the company. The internal sources of funds can be beneficial for the private limited companies in the long run but the sole traders and partnership forms cannot use internal sources for the long term objectives and aims (Atkinson, Kaplan, Matsumura, & Young, 2007). P3: EVALUATION OF THE APPROPRIATE SOURCES OF