Academic Module Assessment Assessment Type
Number
Year
S24 5FC004 – Managing Finance A1 Portfolio
and AccountsSamia
Student Id: 2222965
Student Name: Pranish Khadka
Module Leader: Samia Mahmood
Lecturer: Khusbu Shrestha
Submitted on: 9/1/2024.
Word count: 3032
Group: L5BG2
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Table of Contents
Task:1......................................................................................................................... 2
Financing Options.................................................................................................... 2
Crowdfunding....................................................................................................... 2
Angel Investors..................................................................................................... 2
Venture Capital (VC)............................................................................................... 2
Government Programs........................................................................................... 3
Accelerators.......................................................................................................... 3
Factors to Consider When Choosing Financing Options.............................................3
Recommended Financing Option...............................................................................4
Conclusion............................................................................................................... 4
Reference................................................................................................................ 5
Task:2......................................................................................................................... 6
Comparative analysis................................................................................................... 7
Recommendations....................................................................................................... 7
Conclusion.................................................................................................................. 8
Reference................................................................................................................. 8
Task:3......................................................................................................................... 9
Traditional Budgeting Approach................................................................................ 9
Beyond Budgeting Approach..................................................................................... 9
Suitability of Beyond Budgeting for Keva Ltd..........................................................9
Potential Benefits of Beyond Budgeting for Keva Ltd.:..........................................10
Challenges of Beyond Budgeting for Keva Ltd.:....................................................10
Conclusion............................................................................................................. 11
Reference.............................................................................................................. 11
Task:1
This report explores the key financing options: crowdfunding, angel investing,
government policies, equity, and accelerators. It analyzes the pros and cons of each
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option in detail, discusses factors to consider when choosing one, and makes
recommendations based on the company’s current situation and future
goals(Rahimpour,2021).
Financing Options
Crowdfunding
Especially in fee-based crowdfunding schemes, crowdsourcing enables capital raising
from multiple providers without loss of ownership or control It helps meet market
demand faster , authenticating a product or service, and growing customers before they
even launch. Crowdfunding projects often also facilitate marketing, increase brand
awareness and engage directly with potential customers(Davila,2003).
Crowdfunding campaigns can take a lot of time to set up, launch and manage, it takes a
lot of work to create complex content, videos, and other types of content that aren’t
ensured to be successful; Schemes often fail to meet their investment targets, which
can lead to waste. Negative customer feedback or a failed campaign can damage a
company’s brand and make it more vulnerable to competitors(Davila,2003).
Angel Investors
Angel investors are often experienced business owners who provide insightful advice,
in-house connections, and guidance in addition to financial support. Compared to
institutional investors, angels tend to provide more flexible conditions for investing and
tend to invest initially when the risks are high. Angel investments can sometimes be
secured more quickly than venture capital, which is useful for businesses that need
immediate funding (Masoumi,2022).
When angel investors raise money, they often lose ownership and control due to stock
losses. Compared to venture capitalists, angel investors tend to provide smaller
amounts, which may not be enough for companies with ambitious expansion goals
Angel investors may be more savvy, but maybe they will also have different objectives
for the project, which can cause problems.
Venture Capital (VC)
Venture capital organisations have the ability to supply a substantial amount of finance,
allowing businesses to grow quickly, make R&D investments, and enter new markets.
VCs provide a wealth of industry experience, strategic guidance, connections to
specialists and possible partners, as well as future finance(Wulandri,2022). Having
access to venture capital funds may serve as a company's business plan to boost
market confidence, draw in new investors, and strengthen brand awareness.
Bidders typically demand greater financial commitments and sometimes even pursue
board positions, which means they relinquish influence over business choices. VCs may
force a firm onto aggressive development pathways and frequently demand large
returns, which can complicate matters and have an impact on the culture of the
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organisation. Startups may find it stressful since venture capitalists (VCs) have high
performance expectations and a rigorous due diligence procedure (Masoumi,2022)
.
Government Programs
Government loans, grants, and grants let the company's founders keep their positions of
authority and don't force them to take out any money. Since many government
initiatives are geared towards fostering innovation, it is especially appealing to start-up
companies developing cutting-edge goods. Longer payback durations and low interest
rates are two common benefits of government loans(Bivol,2024).
Applying for government funding can be difficult and time-consuming; Sometimes it
requires a lot of paperwork and compliance. Government program funding is not always
guaranteed and can be highly competitive, with many applications competing for limited
funds. Government funds often come with restrictions on their use, some of which may
not be perfectly aligned with business needs(Bivol,2024).
Accelerators
Accelerators provide startups with advice, access to resources and business
development support, which can be extremely valuable in the early stages. Participating
in an accelerator connects companies with investors, partners, and other entrepreneurs,
creating valuable connections. Accelerators provide a structured environment that can
help startups hone their business strategy, product development and go-to-market
strategies(Wulandri,2022).
Most accelerators require an equity stake in exchange for their support, which dilutes
the ownership of existing shareholders. Accelerators typically offer smaller funding
amounts, which may not be sufficient for companies needing substantial capital for
scaling. Participation in an accelerator program requires a significant time commitment,
which can divert focus from core business activities(Zuquetto,2024).
Factors to Consider When Choosing Financing Options
Angel investors and early venture capitalists are very beneficial to companies, while
established startups with more resources are more suitable for government policy or
financing bids. The necessary investment amount, preferred management, and
readiness to divest are taken into consideration while choosing the funds
(Saleem,2023). Alternatives that are not dependent, like government grants, preserve
ownership but do so more slowly. Beyond money, VCs, accelerators, and angel
investors provide networking opportunities, strategic advice, and mentoring. Businesses
must take into account their growth plan and risk tolerance; venture capital demands
large profits and quick expansion, which may not align with the goals of all of the
founders.
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Recommended Financing Option
Based on the analysis, I recommend pursuing Venture Capital as the most suitable
financing option for our rapidly growing technology start-up. The study leads me to
believe that venture capital is the best kind of funding for our quickly expanding
technology firms. The following factors form the basis of this recommendation.
Ventur Capital funding will enable us to grow our product portfolio, penetrate new
markets, and fortify our competitive position as we scale up our operations. Venture
capitalists provide a wealth of resources, strategic insights, and important information to
assist direct our next stage of expansion (Tech,2018). Obtaining venture capital funding
will confirm our company plan and boost our reputation among clients, associates, and
potential investors. Due to the company's expected rapid growth, it will probably need a
sizable amount of operating capital. Despite the possibility of a slight reduction in
investment, the advantages of advice and communication outweigh the drawbacks,
allowing the founders to concentrate on strategic management improvements rather
than debt obligations.
Conclusion
Selecting the appropriate funding plan is essential to a business's ongoing development
and success. Given the company's present position, money demands, and strategic
goals, angel financing is clearly the most viable option—while crowdsourcing and capital
debt also offer advantages. The business can maintain its current trajectory of rapid
development and accomplish its long-term objectives by using investor knowledge and
angel cash.
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Reference
1. Rahimpour, M., Yahyazadeh Far, M., Aghajani, H. and Azar, A., 2021. Financing
Strategies of Startups. Journal of Strategic Management Studies, 12(45), pp.45-
64.
2. Davila, A., Foster, G. and Gupta, M., 2003. Venture capital financing and the
growth of startup firms. Journal of business venturing, 18(6), pp.689-708.
3. Saleem, M. and Atiq, M., 2023. Challenges faced by startups in accessing
external financing. International Journal of Business and Management
Sciences, 4(2), pp.193-202.
4. Bivol, D., 2024. The Impact of Platform: Related Communication Factors on
Crowdfunding Success (Bachelor's thesis, University of Twente).
5. Tech, R., 2018. Financing high-tech startups. Springer.
6. Wulandari, A.D. and Subriadi, A.P., 2022. Preparing the Startup ecosystem for
building a new startup business during pandemic: a systematic literature
review. International Journal of Electronic Commerce Studies, 13(1), pp.137-160.
7. Zuquetto, R.D., Martins, B.V., Santini, M.A.F., Schaeffer, P.R. and Faccin, K.,
2024. Acceleration as an ecosystem's unique mechanism: a systematic literature
review and ecosystem acceleration model. International Journal of Innovation
and Learning, 35(4), pp.431-458.
8. Masoumi, E., Salehi, M. and Taghvaeeyazdi, M., 2022. Technology Startups and
University-Based Entrepreneurial Ecosystems in the Universities of Golestan
Province. International Journal of Information Science and Management
(IJISM), 20(2), pp.145-165.
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Task:2
Gross Profit Margin Account/Trade Account/Trade
(GPM) Payable Days Receivables Days
For PuppyUs 29% 99 days 99 days
For Kiddo 26% 58 days 60 days
For Charlie Foods 33% 55 days 115 days
*Calculations for the following values are presented in the appendix
The financial measurement provided for Puppy, Kiddo, and Charlie Foods—Gross Profit
Margin (GPM), Account/Trade Payable Days, and Account/Trade Receivables Days—
offer valuable insights into each company’s operational efficiency, liquidity management,
and overall financial health. Here's a comparative analysis of these metrics and a
conclusion on the performance of each company.
1. Gross Profit Margin (GPM)
Charlie Foods had the greatest GPM of 33%, demonstrating that converting sales into
overall profit is the most efficient method. This indicates either excellent cost control,
powerful pricing power, or both. Puppy Us comes in second with 29% GPM,
demonstrating a somewhat higher gain than Charlie Foods but marginally worse
efficiency. With a GPM of 26%, Kiddo has the lowest of the two firms, which may be a
result of greater product prices or less aggressive pricing(Nariswari,2020).
Higher GPM often indicates superior operational efficiency and productivity increases,
positioning Charlie Foods as a leader in this field(Mahdi,2020). While Kiddo may need
to concentrate on lowering manufacturing costs or enhancing pricing methods in order
to boost its profitability, Puppy Us still has a solid position.
2. Account/Trade Payable Days
Trade/Account Reimbursable Days is a measure of how long it takes a business to pay
its suppliers. With a 99-day payment period, Puppy Us takes the longest, suggesting
that it may be cautiously managing its cash flow. Short-term cost savings are possible
with this strategy, but improper management might harm supplier relationships
(Schaeffer,2002).
The repayment periods for Kiddo and Charlie Foods are 55 days and 58 days,
respectively. This indicates that both businesses pay their suppliers on time, which
might support the maintenance of favorable credit conditions, savings, or solid supplier
relationships (Burnie,2023). While a quicker payment rate is often a good thing, it also
means less financing options as compared to Puppy Us.
3. Account/Trade Receivables Days
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Account/Business Receivable Days calculate how long it takes a business to get paid
by its clients. Charlie Foods takes the longest time—115 days—to reflect the possibility
of cash flow problems and liquidity problems brought on by past-due client payments.
This can be the result of clients' extended credit options or ineffective collection efforts
(Salek,2005).
With a maturity term of 99 days, Puppy Us is somewhat better than Charlie Foods, but
nevertheless comparable cash flow issues (Knotus,2013). With a 60-day range, Kiddo
comes out well in this statistic, indicating that it is collecting payments more quickly,
enhancing its cash flow, and lowering the likelihood of bad debts.
Comparative analysis
Charlie Foods is the company with the greatest GPM, a sign of their excellent cost
control and profitability. Puppy Us does the same, showcasing decent but marginally
less productive effort. Kiddo has the lowest GPM, a sign of either higher prices or less
successful pricing tactics. Puppy Us pays suppliers the least often, which saves money
but may sour ties with providers. While Kiddo and Charlie Foods pay significantly faster,
this might improve supplier relationships at the expense of flexibility(Nariswari,2020).
Charlie Foods experiences cash flow issues since it takes the longest to receive
payments. Puppy Us may potentially experience cash flow issues due of its lengthy
collecting time. Kiddo increases cash flow, speeds up fund raising, and lowers the
chance of bad debts.
Recommendations
Puppy Us’ robust GPM of 29% suggests great profitability, but its lengthy trade
balances and 99-day due dates point to problems with cash flow management. In order
to enhance economic growth, Puppy Us have to concentrate on decreasing the number
of days required to boost cash flow. Simplifying background processing would
significantly increase collection efficiency. Other strategies to do this include tightening
credit terms, lowering consumer payment periods, conducting stringent credit checks,
and providing incentives for early payment, such as discounts.
Although suppliers' late payments might result in cost savings, prolonged late payments
can damage supplier relationships and cause supply chain disruptions.
Although Kiddo's GPM of 26% is the lowest in the business, it has an excellent cash
flow management balance between receivables (60 days) and payables (58 days).
Kiddo has to concentrate on cost optimization and adjusting pricing tactics in order to
boost profitability. This entails settling on favorable terms with suppliers, raising the
caliber of the output, and finding inexpensive goods without sacrificing quality.
Enhancing bottom lines may also be achieved by evaluating pricing tactics to guarantee
profitability and competitiveness.
Kiddo must prioritize high-priced goods, cut back on low-cost suppliers, and look into
new low-cost goods and services in order to optimize its product mix. It's critical to have
a healthy cash flow, thus Kiddo should routinely assess credit facilities and supplier
conditions to make sure they meet the client's expectations.
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Charlie Foods is the most profitable company with a GPM of 33%; nevertheless,
because of its extended maturity of 115 days, there is a considerable danger to
investors' money. Charlie Foods should strengthen its credit practices, tighten credit
management, and impose early or late payment penalties to stimulate the recovery of
receivables in order to effectively generate liquidity. reduce expenses by automating
Efficient collecting can also be achieved by streamlining.
Consistent cash flow forecasting can assist strengthen cash flow management by
enabling the monitoring of decreases and the formulation of strategic actions like debt
restructuring or short-term revenue. The company's 55-day rapid payment policy for
suppliers fosters stronger ties between them and offers the advantage of improved
negotiations, both of which may greatly increase income. If it continues to be difficult to
reduce receivables days.
Conclusion
Based on the budgeting analysis and the overall analysis these are the concluding
statement for each of the companies
With the highest GPM, Charlie Foods is the most profitable. Capitalization dates,
however, draw attention to possible issues in the financial system that must be resolved
in order to increase liquidity. Despite having a balanced GPM, Puppy Us may have
financial difficulties because to its extended payment and receivable dates. Extended
durations for collecting payments from clients can lead to financial strain, even while it
controls cash flow by postponing payments to suppliers. Kiddo has good cash flow
because to its short payables and receivables, but its low GPM indicates that it has to
boost margins by either improving cost control or setting prices as competitively as
feasible.
Reference
1. Nariswari, T.N. and Nugraha, N.M., 2020. Profit growth: impact of net profit
margin, gross profit margin and total assests turnover. International Journal of
Finance & Banking Studies (2147-4486), 9(4), pp.87-96.
2. Mahdi, M. and Khaddafi, M., 2020. The influence of gross profit margin, operating
profit margin and net profit margin on the stock price of consumer good industry
in the Indonesia stock exchange on 2012-2014. International Journal of
Business, Economics, and Social Development, 1(3), pp.153-163.
3. Schaeffer, M.S., 2002. Essentials of accounts payable (Vol. 2). John Wiley &
Sons.
4. Burnie, D.A. and de Ridder, A., 2023. Accounts Payable Management.
In Working Capital Management: Concepts And Strategies (pp. 283-307).
5. Salek, J.G., 2005. Accounts receivable management best practices. John Wiley
& Sons.
6. Kontuš, E., 2013. Management of accounts receivable in a
company. Ekonomska misao i praksa, 22(1), pp.21-38.
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Task:3
Traditional Budgeting Approach
For businesses like Keva Limited, traditional budgeting is a popular way to create a set
yearly budget based on historical performance, anticipated future expenditures, and
income projections.
Budgets are rarely modified over the year; they are typically created annually. The
company is confronted with the aims that the personnel have established. To keep
expenditure under control, adherence to established budgets is emphasized
(Norkowski,2012). Line items for income, spending, and capital expenditures are
included in budgets. Managers are judged on how well they can meet budgetary
objectives.
It aids in establishing precise financial objectives and standards for the business. helps
manage performance in relation to predetermined goals and establishes financial
discipline (Lehtoaro.2023). Provides a well-organized budget to help in decision-making.
methodically distributes resources in a way that is in line with strategic goals.
Tight budgets could not adapt effectively to shifts in the market or in the circumstances
facing the company. Budgetary aims are prioritized by managers over long-term
strategic objectives (Berland,2018). Budget creation and implementation are frequently
difficult and time-consuming tasks. Instead, then promoting creativity or flexible
reactions to change, it places more emphasis on cost containment.
Beyond Budgeting Approach
There is a contemporary alternative to traditional monetary policy that stresses flexibility,
adaptability, and decentralized decision-making in addition to monetary policy. Instead
of having set annual goals, it emphasizes constant planning and real-time budgeting.
Suitability of Beyond Budgeting for Keva Ltd.
Keva Ltd., a manufacturing company with over 30 years of experience, has traditionally
relied on fixed budgets to manage its finances. With evolving market conditions and
increasing competitive pressures, Keva Ltd. is considering a shift to the beyond-
budgeting approach to enhance its agility and financial performance (Liyanage,2021).
Below is an evaluation of the potential benefits and challenges of adopting this
approach for Keva Ltd.
modifying financial projections on a regular basis considering the state of the market. It
gives front-line managers the ability to decide using data that is updated in real time.
Rather than using set budget objectives, it evaluates performance in relation to external
benchmarks. Prioritize customer value, performance drivers, and strategic goals over
cost control. Fixed yearly budgets are replaced with regularly updated predictions,
enabling faster progress.
It can make better selections since it adjusts to market changes fast. Teams are given
the authority to choose priorities and modify tactics to boost output. It moves the
emphasis from cost containment to sustainable operations and long-term pricing
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(Borges,2010). The yearly budget cycle's administrative load is lessened by ongoing
forecasting. encourages responsibility and ongoing progress through benchmarking and
real-time feedback.
The shift from a command-and-control mentality to one of power and trust is essential
for success. It is necessary to establish new rules, processes, and training, which may
be costly and challenging (Sonjaya,2024). Budgets that are contradictory may be the
outcome of provincial decision-making. It mostly depends on precise, up-to-date data
and sophisticated analytics, which can need spending money on technology
(Borges,2010)
.
Potential Benefits of Beyond Budgeting for Keva Ltd.:
Improved Reaction to Market Changes:
Frequent market fluctuations that go beyond budget are crucial in manufacturing as
demand, prices, and competitive dynamics all change quickly. Constant forecasting
enhances Keva Ltd.'s capacity to react rapidly to opportunities and challenges by
enabling real-time strategy and channel adaptation.
Empowerment of Frontline Managers:
Decision-making processes that are automated and go over budget provide Keva
Limited management more freedom to make choices based on the situation at hand
rather than rigid financial restrictions. This offers a proactive and flexible approach to
performance management, resulting in quicker reactions and increased productivity
throughout the business
.
Improved Focus on Strategic Objectives:
It encourages Keva Ltd to take activities beyond budget that are in line with strategic
goals, such as raising market share, enhancing customer happiness, or boosting
operational effectiveness, rather than only concentrating on hitting budget targets.
Competitiveness and long-term growth may result from this strategic approach.
Cost and Time Efficiency:
Conventional budgeting procedures frequently need a lot of time and resources.
Consistently exceeding projections and making adjustments to the timetable lowers
administrative costs and frees up time and resources for other valuable endeavors.
Promotion of a Performance-Oriented Culture:
Continuous improvement is encouraged via performance reviews that take into account
external circumstances and pertinent standards. The advantages for Keva Limited go
beyond only meeting budgetary requirements.
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Challenges of Beyond Budgeting for Keva Ltd.:
Cultural and Organizational Shift:
It is necessary to make a fundamental shift in perspective from the conventional control
strategy to one that prioritizes power, trust, and responsibility in order to go beyond
budgeting. To enable this cultural transition, Keva Ltd. will need to make investments in
change management and training. This may be challenging, particularly for an
organization with established systems.
Implementation Complexity:
Excessive spending necessitates improving current spending plans, protocols, and
performance evaluation techniques. Keva Limited could have difficulties in efficiently
managing change without interfering with business operations, integrating new
technology, and guaranteeing data integrity.
Risk of Decentralized Control:
Decentralization increases flexibility, but it also raises the possibility of departmental
decision-making becoming inconsistent. Keva Limited has to make sure that its
managers have access to the information, data, and advice they need to make choices
that align with the company's overall goals.
Dependence on Data and Analytics:
Depends significantly on advanced analytics and real-time data to guide decisions that
go beyond budget. To improve its data management and analytics skills, Keva Ltd. will
need to make expenditures, which might be costly and technically complicated initially.
Conclusion
Leveraging technology beyond budget offers Keva Ltd a strong opportunity to increase
responsiveness to market conditions and improve financial performance. This shift
requires significant changes in culture, processes, and technology, but the benefits—
such as improved agility, stronger decision-making, and a focus on aggressive goals—
outweigh shortcomings completely Can lay a strong foundation for long-term expansion
in an all-time changing business environment.
Reference
1. Norkowski, M., 2012. The beyond budgeting concept and multifaceted criticism of
traditional budgeting. Prace Naukowe Uniwersytetu Ekonomicznego we
Wrocławiu, (263), pp.140-149.
2. Berland, N., Curtis, E. and Sponem, S., 2018. Exposing organizational tensions
with a non-traditional budgeting system. Journal of Applied Accounting
Research, 19(1), pp.122-140.
3. Liyanage, T. and Gooneratne, T., 2021. From'Traditional'Budgeting
to'Better'Budgeting: Navigating through'Stability'and'Change'. Management
Accounting Frontiers, 4, pp.27-50.
4. Borges, J.N. and Anderson, K.P., 2010. Traditional Budgeting vs. Beyond
Budgeting.
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5. Sonjaya, Y., 2024. Exploring the Evolution of Budgeting Practices from Traditional
to Technology. Advances in Management & Financial Reporting, 2(1), pp.36-45.
6. Lehtoaro, N., 2023. Why is traditional budgeting still used and how can it affect
strategy?-A Case Study.
Appendix
Gross Profit margin
Puppy Us:
Gross Profit Margin = (2400/2800) x 100 = 29.27%
Kiddo:
Gross Profit Margin = (1612/6200) x 100 = 26.00%
Charlie Foods:
Gross Profit Margin = (3140/9500) x 100 = 33.05%
Trade Payables
Puppy Us:
Trade Payables = (1678/6170) x 365 = 99.34 days
Kiddo:
Trade Payables = (730/4568) x 365 = 58.27 days
Charlie Foods:
Trade Payables = (930/5840) x 365 = 58.12 days
Trade Receivable Days
Puppy Us:
Trade Receivable Days = (2220/8200) x 365 = 98.73 days
Kiddo:
Trade Receivable Days = (1020/6200) x 365 = 60.04 days
Charlie Foods:
Trade Receivable Days = (2980/9500) x 365 = 114.53 days
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