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MFRD (Managing Financial Resources and Decisions)

Answer :

Introduction Financial Resources

Financial Resources may be defined as money which is available in business organization for spending in the most profitable investments. It refers to input for the production process and thereby helps in fulfilling the organizational goals and objectives (Managing Financial Resources and Decisions, 2013). In this, finance manager of an organization plays a vital role in making optimum utilization of resources to the large extent by framing sound strategies and policies. This project report is based upon Sweet Menu Restaurant Ltd which is the most reputable restaurant and situated in Gants Hill in East London. The restaurant is planning to open its new branches in Central London and Croydon. This report will discuss the sources which are available to restaurant along with their implications. It also depicts the importance of financial planning for restaurant in relation to their expansion project. Besides this, it also develops understanding about the investment appraisal techniques which help in making suitable investment decisions.

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Identifying the sources of finance which are available to a business

There are several internal and external sources of finance that are available for Sweet Menu Restaurant. It includes retained earnings, issuance of shares and debenture, bank loan, leasing as well as friends and family members. By undertaking such sources of finance, company is able to meet their financial needs and expand their business operations as well as functions.

Evaluating the most appropriate sources of finance for the organization

On the basis of implication of different sources of finance, bank loan is the most suitable sources for the expansion plan. Through this, Sweet Menu Restaurant can easily meet their financial needs. Usually, banks are always ready to give loan on the basis of collateral security. In addition to this, for bank loan, Sweet Menu Restaurant requires to repay the amount of loan in the form of installments. Easy installment payment system reduces financial burden from the company (Orens and et. al., 2009). Besides this, bank loan also provides tax benefit to an organization. In addition to this, interest rate which is charged by bank for financial assistance is lower than the other commercial institutions and private money lenders. On the basis of all these aspects, restaurant needs to undertake bank loan to expand their business activities and operations to the large extent.

Analyzing the cost of different sources of finance

Sweet Menu restaurant have undertaken retained earnings and bank loan to meet their financial needs or requirements for the expansion of restaurant. Thus, different sources of finance impose different cost upon Sweet Menu restaurant in terms of financial and opportunity cost. Both cost having high level of impact upon the growth and profitability aspects of restaurant which are as follows:

Financial cost: Financial institution or bank imposes high financial cost in front of Sweet Menu restaurant. For the financial assistance bank charges high interest rate which reflect financial cost in front of an organization (Overton, 2007). In addition to this, restaurant also requires repay the loan in terms of installment. This aspect also affects the profitability or liquidity aspect of an organization.

Opportunity cost: It refers the loss which organization has to bear due to the selection of another alternative. If Sweet Menu Restaurant undertakes bank loan to fulfill their financial needs then liability side of an organization increases. This aspect places negative impact upon their shareholders that company does not enough funds to meet their financial needs or requirements.

Thus, financial and opportunity cost have high level of influence upon the organizational growth and development.

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Stating the importance of financial planning for Sweet Menu Restaurant

Financial planning may be defined as a process which enables organization to make sensible and profitable financial decisions. By preparing effective financial plan Sweet Menu Restaurant is able to make contribution in the organizational growth and development.

Importance of financial planning:

  • Financial planning plays a vital role in coordinating the activities of different department within an organization. In addition to this, it also provides deeper insight to Sweet menu about the fund which is available within the business organization (Rasid, 2014).  
  • It provides assistance to restaurant in relation to the funds which they are required to raise from the other sources of finance.  
  • Along with it, financial planning also facilitates optimum utilization of financial resources to the large extent.

Further, financial planning helps sweet Menu Restaurant coping up with the future needs or contingencies by anticipating the sales and growth aspect (The Importance of Personal Financial Planning, 2015). Thus, financial planning is more important with the aim to achieve success in the competitive business area.

Stating the impact of sources of finance upon financial statements of an organization

Different sources of finance impact differently the financial statements of an organization. Each and every source of finance having impact upon the financial statements of an organization. Thus, restaurant needs to take care while selecting the sources of finance for the business. Sweet Menu restaurant have undertaken bank loan and retained earnings to meet their financial (Valle and Gomes, 2014). For instance: Sweet Menu Restaurant has undertaken the bank loan 300000 @ 15% per annum.

Analysis of budget and decisions based upon it

Budget may be defined as tool which reflects the income which organization will generate over the period of time. In addition to this, it also contains the expenses which company will incur during the predetermined time period (Wahlen, 2011).

On the basis the cited cash budget it has been assessed that sales revenue of an organization shows fluctuating trend in their performance. Which is may cause behind the deficit arouse in cash balance. Nevertheless, in the month of December sales revenue of Blue Island Restaurant is improved as compared to previous months.  In addition to this, expenses of an organization are also increasing. Thus, during September to December outflow of an organization is higher than its inflow. Thus, organization needs to frame competent strategies and policies to maximize the sales revenue. Whereas, in December inflow of organization is increasing that is the positive sign for an organization. This reflects that policies and strategies which are reformed by Blue Island are very effective. By following effective strategies Blue Island restaurant is able to attain success in the strategic business arena.

Calculation of unit cost and making suitable pricing decisions

Unit cost refers to the expenses which are made by an organization in order to produce the product or services.

Pricing decisions: Price refers to the summation of cost and fixed percentage of profit. Through this, Blue Island restaurant is able to cover their expenditures and thereby able to make profit (Al-Bakri, Matar and Nour, 2014).

On the basis of the above aspect the total cost of the product is £10 whereas restaurant charges £16 for the meal. This aspect reflects that Sweet Menu earned £6 from per customer. The percentage of cost on sales is 62.50% whereas profit percentage is 37.5%

Assessing the viability of two projects by undertaking investment appraisal techniques

Investment appraisal technique may be defined as a tool or technique which helps organization in assessing the reliability or viability of project (Batta, Ganguly and Rosett, 2014). It includes payback period and net present value method which provides assistance to Blue Island restaurant in making suitable investment

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