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Nov 8, 2017 in Analysis
Significance of alternative forms of finance available to Coyle business
Coyle runs a business as a plumber and supplier of spare parts to contractors and his main source of funds is payment from the contractors. Based on appendix 1, the contactors mainly depend on contract payments, as their source of funds, and from the proceeds, they can then pay Coyle. Based on the literature, it is evident that contractors are not being paid on time despite numerous complains. Demand cash rebates from their suppliers, such as, Coyle, and this is likely to hamper the supply side of the business. This scenario paints a bad image to the business and is likely to affect other sections of the business.
To curb on the effects, suppliers such as, Coyle should adopt an alternative sources of finance that are not dependent on the activities of his core business. These alternative sources may include funds from friends and family in form of debt or equity or both. Other may also include trade credits, bonds, leases, venture capital, franchising, factoring and commercial papers, bank loans among others. Bonds are generally regarded as debt instruments issued by businesses, which require them to pay periodic interests to the holders of the bonds, and to repay the principal amount of the bond at the date of maturity (Hurley, 2009).
Coyle business can obtain funds through use of several options. One most recommended method would be to raise capital through issuance of shares. The stoke exchange can be a good avenue for raising capital. Coyle as a business entity can issue shares for the public to purchase as securities. Another alternative would be to raise extra money through binds. Placing bonds in capital market would attract investors who buy these securities. Leases are rental agreements that go beyond a year or even more and they involve a series of fixed payments. For example, if Coyle business needs assets, which it cannot afford readily then it can lease them by paying fixed lease rentals.
Venture Capital refers to long-term capital available to small and medium enterprises that wish to expand and they do not have ready access to the stock markets that yield higher level of potential returns at very high levels of risk. Franchising is a method of growing business on less capital than that required. It involves a franchisee paying a franchisor to be able to run a local business using the franchisor´s trade name. The franchisee pays an initial franchise fee followed by regular payments based on his turnover. Factoring is a method of raising short-term finance in which a factor manages the sales ledger of the business and therefore can advance some money to the business based on the figure outstanding for trade receivables. In the telegraph, it is evident that there is delay in collection of receivables therefore Coyle business can factor the receivables for a certain amount of money, which will be recovered, by the factor when the receivables are paid. Commercial papers are short-term unsecured promissory notes with the issuer’s promise to redeem the note when it matures. They are sold on discount basis just like the treasury bills and they have a return that is slightly higher.
The alternative sources listed above have great significance to Coyle business because they will enable him raise funds in an environment that has weak formal institutions and thus he will be able to grow and expand his business (Hurley, 2009). Coyle can also easily obtain these funds whenever the business is financially constrained and the average costs of obtaining them are relatively cheap. For example, Coyle can easily talk to his family and friends to lend him some money and he might not incur any costs and he will be given favourable interest terms. The access to trade credits can also enhance the chances of Coyle business receiving bank loans because the trade credits will facilitate the expansion of the business thus enabling it to have the collateral to obtain bank loans.
Coyle as a business needs to find out about the market share of their competitors. They can find out how a stronger brand may have made it amidst the competition. They can even go ahead and borrow one or two things from the competition. The study about the competitors should be comprehensive enough to cover all the aspects of the business for a better understanding of everything about the industry. This will help them deal with any external threats that their business may have to deal with.There are those marketing strategies that Coyle as a business can come up with if they want to remain on top of the game. This they can do by increasing the number of franchises out there so that they can sell more. There are different ways through which these objectives can be achieved. One such a method could be through internal and external campaigns. They can also organize contests through which they market their brands. They could also sign agreements with other big brands so that through these agreements they can gain publicity.
Importance of working capital management
Working capital is the capital that is readily available to a company. It is the net of resources that are already in cash or are readily convertible to cash in the ordinary course of the business otherwise referred to as current assets and the commitments of the organization that require cash otherwise known as current liabilities. Good Working Capital Management will enable Coyle business to avoid operating inefficiencies that come because of excess working capital. Excess working capital means that money is held up in inventory or receivables and cannot be used to discharge the company's obligations as they fall due. Working capital management will help to maintain an optimum balance of each of its components by ensuring that the business has sufficient working capital to maintain its liquidity but not in excess so that the level of working capital influences positively on profitability. Coyle business will also avoid bankruptcy, as it will be able to balance its needs with its obligations. It is also important for the long%u2010term success of Coyle business as its survival depends on its ability to discharge its day%u2010to%u2010day obligations (Hurley, 2009).
Accounting concepts and conventions are defined as laid down rules of accounting that should be followed while preparing all the accounts and financial statements. They are applied majorly to ensure that the financial statements portray a true and fair view, which ensures and assesses whether the books of accounts actually portray accurately the activities of the business. Listed below are the accounting concepts and conventions I have applied in preparing this accounts
Historical cost convention This convention states that transactions should be recorded at the existing price, and assets should be valued at their original cost. In my calculations, assets like premises, equipment and van have been valued at their original costs after which necessary adjustments like depreciation have been made.
All the items I have accounted for have been measured in monetary terms. The unit measurement used is the dollars.
Based on this convention I have recognized transactions when they occur and not necessarily when the cash is received or paid. For example trade receivables indicate that a transaction occurred that entitles Coyle business to some payment yet they have been paid. Trade payables also indicates that a transaction occurred that requires Coyle business to pay out some cash yet they have not done so.
Going Concern concept
While preparing the above financial statements I have assumed that the Coyle business is solvent and viable and thus will operate in the foreseeable future since there is no evidence of it being sold or going into liquidation. This concept is important in the valuation of assets and liabilities and also allocation of revenues and expenses to the pertinent accounting periods as enhances the use of historical cost concept in asset measurement. This concept is the basis for accrual accounting and its absence the accounts would be prepared on a winding up basis (Barry, 2006)
There is consistency in my calculations because the way I have treated items in the first set of financial statements is the same way I have treated them in the second set of financial statements. This is in essence will help the users of these statements to make meaningful comparisons. In the event that accounting policies change, then companies are required to make known these facts and explain the impact of the changes.
Matching or Accruals concept
This concept requires that Income be properly matched with the expenses of a particular accounting period. In the above financial statements I have the incomes and revenues of the period beginning 1st October 2011 to 30th September 2012.This ensures incomes and expenses of e particular period are correctly recorded in that period.
Separate entity concept
This concept enumerates that, each business unit has a legal existence and should be treated, as a separate entity from the person or persons that own it. Therefore, its existence is distinct from its owner. In the preparation of the above statements, this concept is applied when the money from the personal bank account that is used to buy a computer is recognized as new capital to the business. This is because the owner of the personal account and the business itself are distinct. This concept helps to avoid misunderstanding between a business and its owner and provides room for either to sue the other in the event of a disagreement (Blanchard, 2009)
Period-Frame or fiscal year
This states that the impact of transactions should be measured for a specified period usually known as the financial year of the entity. The above transactions have been measured for the financial year starting 1st October 2011 and ending 30th September 2012.