Working Capital

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Leasing in a substitute to buy capital assets, buying machinery can be very expensive. Particularly to a new business. Leasing can offer Owensport to avoid the initial expenditure. So it can be a significant help towards Owensport cash flow, so I recommend owensport to purchase his assets by lease. I also recommend owensport to purchase the premise by a close end lease, so that owensport overhead will be lower, this will help the company to break-even. Working Capital

As Owensport is a new business, he may need to borrow money to cover his day-to-day expenses until he makes a profit There are different sources of borrowing when starting or growing a business. I’m going to look at the advantages and disadvantages of loans and overdrafts- two of the most popular sources funding working capital, and I will also talk about the other type of sources funding capitals which is selling shares etc. Working capital is important because it pays off the business day-to-day expense (e. g. paying for the stocks, wages, bills etc); the source of working capital is current assets.

A current asset is a short-term asset, which a company uses to generate cash. But there also is a current liability, which a company has to be taken to account how much working capital the company has at its disposal. To find out the working capital the following equation must be done. WORKING CAPITAL = CURRENT ASSETS – CURRENT LIABILITIES | | STOCK + DEBTORS + CASH Working capital is the same as net current asset and its is imporant to the company balance sheet. It is important to many business to have working capital to meet the company ask.

Many compaines have gone under because they have not found enough working capital. The managemnet of the working capital is called the working capital cycle. A working capital cycle chow cash following through differnet stages of business. Some part of of this cycle may take longer than others, and the amount of the working capital will depend on the timing in the business. Loan A loan is an amount of money a company borrow for a set period and with an agreed repayment schedule. The repayment amount will depend on the loan size and the interest rate.

Loans are generally most suitable for paying for assets, like gym equipment, for -up capital and for other cases where the amount of money you need is not start going to change. The terms and price of loans vary by provider and are usually negotiable. A company should note that what starts out as a good deal may change, and so may abusiness needs. It’s worth reviewing the options regularly. Selling Shares The only way a company can sell shares is by forming a limited company, then be willing to sell some of its shares in return for some inverstment in the business.

Is a company does this it will mean that it will lose some of its potental gain the company might get. As this happenes the shares will increse in value as the profit of the business grows. Ordinary Shares Ordinary shares carry the residual economic value of a company. They carry rights to sharing of profits through dividends, to the extra assets of a company and to votes at annul general meetings of the company. Preference Share Preference shares are entitled to a fixed dividend and rank ahead of ordinary shares in their call on assets if a company goes under.

They do tend towards a higher dividend yield, and sometimes have different voting rights. However they are slower than ordinary shares to benefit from price rises when a company is doing well. Dividends Dividends are share of the company’s profit each year. As this is the same as many type of share investment. If the organisation fails all it ordinary shareholders it may find that they lose all the money invested in the organisation. Deferred Share A deferred share is the same as ordinary share but they receive dividends in certain condition, such as a specific level of profit, or on a particular data.

The conditions of the deferred share sometimes require that dividends be paid only after a certain amount of paid out to ordinary shareholders. Right issue Rights Issues are a way for companies to raise money by giving existing shareholders a right to buy shares in the company in amount to their existing shareholdings. It is common for new shares to be issued in a rights issue at a discount to the current price at the time the Offer is made. Debentures Debentures are not type of shares, Debentures are loans that are usually secured and are either fixed or floating charges with them.

Debentures are often secured on the assets of the company. The only way a debenture stock can be issued if the stock is a PLC. Debenture holders have the right to receive their interest payments ahead of any dividend is payable to shareholders and, most essentially, even if a company makes a loss, it still has to pay its interest charges. Debt Factoring A debt factoring are company which allows other companies to raise finance based on the value of the companies outstanding invoices.

Debt Factoring also gives the company the chance to outsource the sales ledger operations and to use more complicated credit rating systems. Once the company has set up a factoring arrangement with a debt Factor. The debt factor works by having factor fully controlling the companies’ sales ledger and provides the company with credit control and collection services of all its outstanding debts. The invoices the company issued ahead sales are sent to the factor that normally advances up to 80 to 90% of the invoice amount to the company.

The balance, less charge, is paid when the customer makes payment directly to the factor. The service is disclosed to the companies’ customer who usually receives a letter from the factor, or attached note to the companies invoice, containing payment instructions to the factor. Government assistance There government try to give assistance to business, which cannot get any help from anywhere else. For new business there are a number of grants and schemes available to help businesses.

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