Given the case that the main contractors have long been perceived as having engaged in unfair practices for which they deliberately held payments meant for small contractors for a substantial period exceeding 30 days. Thus, putting these form of businesses at vulnerable positions upon which to conduct their businesses. Some of the businesses have claimed fault while others have opted to shift operations to other lenient business environments.
Therefore, it is safe for these types of businesses to recognize the significance of the different alternatives of finance sources available to them in order to prevent their possible foreclosures. It is also fair that these business recognize the significance of working capital management since their business activities involve spontaneous forms of supplying hence require strong liquid cash assets.
Report on Alternative Sources of Finance for Coyle’s Small Business:
There are different forms of finance sources which are available to SME, s like Coyle’s sub-contracting firm. These sources and their significance are discussed as below:
First, there is Government Backed Loans: which are availed to Small and Medium Enterprises at low and subsidized interest rates. Given the assumption that in the United States the president assented to the American Recovery and Reinvestment Act (ARRA), facilitating loans to small businesses became a priority to revive the economy. Furthermore, this form of finance attracts low interest rates since with the assertion of ARRA; the SBA was allowed to waive substantial level of fees previously charged to banks which was later passed to borrowers. Most notably, these forms of loans have formulated different programs aimed at assisting small businesses attain significant growth and development (Birt 2010, p.254-267)
Second, there is the Peer-to-Peer network: whose significance lies in brokering loans to small business which have failed to secure formidable loans needed in the course of expansion. The significance of this alternative source of finance is the assumption that they are easily accessed since lending clubs performs most of the transactions hence assurance of immediate funds. Usually, the credit score is measured and whenever it is determined that they fall way below the requirements, it becomes apparent that the funds will not be granted to loan seekers. In that case, these peer-to-peer networks help in eliminating the borrowing barrier thus access to funds is assured (Verhoen, Brown and Beekes 2011, p.98).
Third, there are the Asset-Based Lenders: who help small businesses like Coyle’s contracting firm to access capital funds through the factoring process. The factoring process works in a manner which allows businesses to sell-off their existing trade receivables at the highest bidders. In this case, the firm acquires funds required in operating the business activities while at the same time lower the risk involved with bad debt. It should be noted that these trade receivables are sold at a price lower than their original prices.
Importance of Working Capital Management:
The aspect of managing both assets and liabilities is considered to be one of the most fundamental functionalities for both business managers as well as their respective accounting personnel. Notably, small business like Coyle’s contracting firm should embrace strategies which allow the balancing of more than two operational activities. This is because of the assumption that small businesses lack the capacity needed in absorbing large volumes of losses which are apparent in the course of conducting transactions.
Therefore, the larger benefits attributed to managing working capital is for small businesses to avoid possible scenario of bankruptcy. In itself, working capital management involves the procedures put forth to aid in the course of balancing the needs of a business activity in respect to both the available short-term assets and liabilities. Facets of working capital management entail such forms of activities as short-term loans, merchandise acquired on credit as well as those commodities or services which have been provided to others on credit terms. For instance, in Coyle’s business case, the facet involves performing a contract to the end hoping to receive payments to add to the down-payment made earlier (Verhoen, Brown and Beekes 2011, p.98-101).
Conclusion:
The issue of alternative sources of finance for Coyle’s form of business is vast and the owner should thus consider options which are significant to his area of operations. Furthermore, it is safe assume that given the different forms of sources ranging from government backed loans to asset-based lenders are only applicable to different business operating at different levels.
Having looked at the importance of checking on the working capital management for Coyle’s type of business, it is fair that methodologies used in improving on the activity be put on task, first, the business should engage in overseeing both the expenditures as well as other forms of debt on a monthly basis to avoid possible uncertainty. It is safe that the business also plan on the approach to use in balancing the incurrence of expenditures as well as other forms of debt financing. Furthermore, the Company can embark on lowering its production activities to a level which should be manageable in terms of financial resources as well as labor.
Task 2:
Coyle’s Income Statement
As at 31st December 2012
Total Turnover 138,250
Purchases (53,520)
Cost of goods sold 84,730
Less Expenses: Wages and Salaries 15,343
Marketing Costs 4,520
Rates and Insurance 5,600
Sundry Expenses 7,650
Heating and Lighting 2,150
Motor Expenses 8,666 (43,929)
Gross Profit: 40,801
Less: Back Costs (Interest Payments) (4,680)
Net Profit 36,121
Coyle’s Balance Sheet
As at 31 December 2012
Fixed Assets:
Premises 163,250
Equipment 24,000
Van 14,000
Total Fixed Costs: 201,250
Current Assets:
Inventory 15,900
Trade Receivables 11,560
Bank Balance 5,600
Total Current Assets 28,020
Current Liabilities:
Trade payables 21,474
Provisions for Depreciation:
Equipment 10,800
Van 8,400
Provision for doubtful debts 825 (41,499) (13,479)
Total Assets and Liabilities 187,771
Financed by:
Capital Account 97,690
Net Profit 36,121
Bank Loan 53,960
Total Equity 187,771
Workings as Par the Further Information Provided:
Workings1 Provision on depreciation:
Equipment = 0.2 * 24,000 = ? 4,800
Van = 0.25 * 14,000 = ? 3,500
Workings2 Provision for Doubtful Debts = 0.1 * 825 = ? 82.5
Updated Coyle’s Income Statement
As at 31st December 2012
Total Turnover 138,250
Less: Contract Losses (10,000)
Purchases (53,520)
Additional Purchases (1,230) (54,750)
Cost of goods sold 73,500
Less Expenses: Wages and Salaries 15,343
Marketing Costs 4,520
Less: Prepaid Market Costs 1,600 6,120
Rates and Insurance 5,600
Less: Prepaid Insurance 560 6,160
Sundry Expenses 7,650
Heating and Lighting 2,150
Add: Accrued Heating and Lighting 950 3,100
Motor Expenses 8,666 (47,039)
Gross Profit: 26,461
Less: Back Costs (Interest Payments) (4,680)
Net Profit 21, 781
Updated Coyle’s Balance Sheet as at 31 December 2012
Fixed Assets:
Premises 163,250
Equipment 24,000
Van 14,000
Computer 1,800
Total Fixed Costs: 203,050
Current Assets:
Inventory 12,800
Trade Receivables 11,560
Bank Balance 5,600
Total Current Assets 28,020
Current Liabilities:
Trade payables 21,474
Provisions for Depreciation:
Equipment 10,800
Add: 4,800
Van 8,400
Additional 3,500
Provision for doubtful debts 825
Additional 🙁 82.5+ 800) 882.5 (50,681.5) (22,661.5)
Total Assets and Liabilities 180, 388.5
Financed by:
Capital Account 97,690
Net Profit 21,781
Bank Loan 60,917.5
Total Equity 180,388.5
Accounting Concepts and Conventions Used in Preparation of Coyle’s Financial Statements:
In the course of preparing accounting information thus accounting financial statements, it is safe to take into consideration the overall accounting objective which calls for fair and true representation of substance of items in businesses and in reporting results of these entities. In Coyle’s case, the financial statements have been prepared with precision and immense accuracy. This is depicted by the use of correct figures in calculating the different financial statements.
Historical Cost Convention: has been deployed in the course of preparing the financial statements of Coyle’s business since business transactions have been posted at their pricing rules and as par their immediate period of recording. For instance, in the course of recording the sales turnover, the recording process identified a ? 10,000 loss which was later reflected in the course of preparing updated income statement. Furthermore, this accounting convention calls for valuing assets at their respective original costs. In the course of preparing Coyle’s business financial statement, equipment, van and premises have all been valued at their original costs. Adjustments made to these values are depicted in the application of the depreciation (Black 2009, p 128-133).
In the course of preparing Coyle’s financial statements, it is evidently clear that the accounting convention of monetary measurement has been used largely. This convention requires accounting personnel to account for business items which can be quantified in monetary values.
Separate Entity: requires that business activities and their respective owners be distinguished and separated. Private transactions should be separated from matters pertaining to the business activity (Black 2009, p.133).In Coyle’s business case; application of this convention has been achieved in the course of accounting for personal drawing. For instance, Coyle bought a computer worth $ 1,800 for business use but paid for it using his personal account. This is a private transaction which does not affect the normal operations of the firm.
Realisation Concept: is an accounting convention which requires accounting personnel to recognize business transactions at the immediate point of sale or in other cases passage of legal ownership of the business item (Black 2009, p.179). This concept has been reflected fairly in the course of recording for trade receivables which account for values of sale which are made on credit and are legal in nature. This transaction also reflects legal transfer of ownership to other parties.
Also, it should be noted that preparation of the financial statements takes into account the varieties of the accounting concepts which include going concern concept; which assumes that the Company at hand is not going to experience bankruptcy. In Coyle’s business case, it is evidently clear that the business items confirm the survival of the entity into future operations. This is portrayed through the crucial valuation of both assets and liabilities of the business as a whole. Consistency Concept; is an accounting concept which demands that business transactions and valuation techniques be similar from one financial period to another. In Coyle’s business case, the calculation of provision for depreciation has used a single percentage from year to year without alterations. Matching Concept; is an accounting concept which demands for income to be matched with immediate expenses within a specified accounting period (Black 2009, p 143). In Coyle’s business case, this has been achieved given the fact that income statement has matched revenue earned with such expenses as wages and salaries in order to attain the net profit for the business as at 31st December 2012.
