1.

1 The source of finance for VietSon Tours Partnership:

The source of finance influence the business operation in following many ways. It will be
divided into four main groups are business owner, borrowing from the bank, other way of
borrowing and government aid. Realizing the growth of tourism industry increased rapidly,
VietSon has the plan to expand their business so they need to consider choose the right financial
sources. There are some available sources of finance for VietSon Tours Partnership that can be
analyzed in the following:
Limited company: This kind of business is owned by shareholders and run by board of director.
The owners liability is limited so they are not liable for companys debt. It give the advantages
for investor when the company bankrupt, they lose the investment but their personal possession
will be kept.
Partnership: It involves two or more persons contribute and run business together. In the case of
VietSon, the company is Partnership Firm so they received 167,000 from Mr. Pham Duc and
Mrs. Le Nga to purchase two mini bus and other expenses.
The sources of finance can be classified as two key are external and internal sources
Internal
Retained profit
Sales of asset

External
Long-term
Debentures

Medium-term
Hire purchase

Short-term
Bank overdraft

Share

Leasing

Creditor

Long-term bank loans

Bank loan

Grants

Debt factoring

Table 1 The kind of financial sources

1.1.1 The internal sources: The sources raise money within company include retained profit,
sales of asset. For this source, company does not need to pay interest on the money.
The retained profit: It just only available for business that work over one years. In fact, it can
make cash when trading has begun. In addition, it could be the medium or long term sources of
finance.

Sales of asset: Money from selling fixed assets such as machinery, building, land etc. It is the
temporary way of financing. However, the company has limit of fixed assets which they can sell
off.
1.1.2 The external sources: the money will come from a various sources outside of
organization.
Borrowing from the bank: The bank always the important sources of finance business in shortterm and long-term. VietSon Tours can borrow the debenture loan with fixed or variable interest.
For VietSon Tours, they need to maintain the financial health of company to ensure the bank
allow them borrow money.
Retained earnings: Company will receive from the last season of business earned profit instead
of paying shareholder as dividend.
Working capital: It is the short-term reserve for daily expenses such as salaries, rent, bills and
invoice payment.
However, VetSon Tours is not a public company so they cannot raise the finance from sell the
share to shareholder or stock market. Therefore, they need to change the public company if they
want to raise more money in the form of equity issue.
Overdraft facilities: It is the kind of short-term loan when company want to need to solve the
short term financial problem. VietSon Tours Company can withdraw money with the amount
higher than the bank account.
Leasing: The firm can obtain the use of certain fixed asset such as building, machine,
transportation etc. The main advantages of lessee is cheaper cost than the bank loan. It can be the
agreement between lesser and lessee that both of them have good benefit. However, the lesser
owns the asset until the payment settled.
Hire purchase: It is able to allow company to acquire an asset quickly without paying full price.
Therefore, they will have more options to use the item in period of time or buy it with good
price. Thus, company can own the assets after finish payments.
Venture capital: This sources from organization or individual that seek long-term profit rather
than short-term dividends.

Government loan: Company can borrow the government with low interest rate. It will give a lot
of advantages for business. The main purpose of this sources is reduce the unemployment rate
and support company especially small business. Therefore, VietSon Tours can use it as a good
way to raise the finance.
Particular

Year 1

Opening cash balance:

Year 2

Year 3

Total

(180,304)

(114,092)

Cash Sales

175,000

278,250

315,000

768,250

Cash from Receivables

133,700

253,883

306,327

693,910

Total cash collected

308,700

351,829

507,235

1,167,76
4

266,400

289,200

698,400

Cash Payments:
Purchase 2 mini bus
Legal

167,000
1,000

Stationery

500

Brochures

700

Consultants

1,200

Insurance

800

Rent

500

Miscellaneous
Expenses
Total start-up expense
Cash requirement

300
5,000
30,000

Cash expenses

142,800

Total cash expenses

344,800

Bill payment

144,204

199,521

219,625

563,350

Total cash payment

489,004

465,921

508,825

1,463,75
0

(180,304)

(114,092)

Closing cash balance

Figure 1 Cash Flow Budget of VietSon Tours

(1,590) (295,986)

1.2 The implication of the different sources of finance for VietSon Tours:
The sources of finance is also bring many risk to companys business. Each financial sources has
a set of implication such as tax effects, legal restriction, and bankruptcy and so on. The
implication could be negative or positive so to avoid those risks manager need to understand the
implication of different sources of finance.
When VietSon Tours has a plan to expand business operation or pay investment, there are two
method include debt and equity. The debt financing involves the borrowing from the bank or
general public. With private investor, it will be the legal agreement between both parties so they
need to ensure the liable of contract. When VietSon Tours borrow money from the bank, they
should pay a certain amount of interest as normal principles. In addition, the tax deduction is the
main advantages of debt financing to help VietSon Tours raise their fund. In most business cases,
the interest payment on a business loan can be expenses so it can deduct company income tax.
For VietSon Tours, they are able to deduct loan interest for their business purpose. In addition, it
also reduce the interest rates. However, VietSon Tours must keep an eye on potential risk and
Vietnam legal restriction on the power to borrow when they choose debt as a resources.
Therefore, the financial department should carefully calculate any investment and sources. The
total capital value of investor in a period of time will be recorded in the companys charter. The
time for investing must less than 36 months in order to ensure the legal restriction. In addition,
the issuing debts will effect directly on company especially the shareholders.
In the case of VietSon Tours as Limited Company when they want to issue new share in order to
raise their capital, they can choose the ordinary shares and preference share. However, the
business will face the problem is dilution of control. For preference shares, it does not lead the
dilution of control of existing shareholders. The main advantages of preference shares do not
carry any voting power. Besides that, the issue of preference share does not restrict the
companys borrowing power. When VietSon Tours failure to pay interest on debt and ordinary
dividend that effect on the business situation and all employees. The larger amount of debt is the
most reason to lead the risk of bankruptcy that make borrower cannot pay its creditors. Thus,
they are unable to continue in business. It is the distinction between a company financing
through the debt and financing through equity. Another option is the ordinary shares then
VietSon Tours can sell them for their investors. The voting share of main shareholders can be
dominant by new investors because they have more ordinary shares. This is the reason why

VietSon Tours will face the dilution of control when they choose this sources of finance.
Otherwise, the risk of equity financing is high when business goes bankrupt and liquidates the
shareholder cannot get any money until the bank has been paid out. For tax relief, the partner of
VietSon Tours include Mr. Pham Duc and Mrs. Le Nga have responsible to pay their individual
tax.
The retained earnings are totally different from the shares because it will influence on the tax
rate. When VietSon Tours get the profit, shareholders will have the right to decide about the
amount of money. They can divide the profit according to the ratio of shares that each
shareholder has. In addition, the cost of this method is opportunity cost without presence of other
direct cost.
1.3 The appropriate sources of finance for VietSon Tours:
There are many way for raising the finance in business that VietSon Tours can use for their
different purposes. This is the advantages and disadvantages of finance sources available for
VietSon Tours Partnership.
1.3.1 From Partnership to Private Limited Company: It is necessary for VietSon Tours to
change their business types when they want to raise more money.
Sources

Advantages

Disadvantages

A bank loan can be secured in The bank need to the security

specific time

on the loan

The business can easily plan It may lead the decrease cash
Long-term bank loan

ahead

flow
The interest need to paid

It is very common because it It often has high interest rates

Bank overdraft

cheaper than a bank loan

No security needed

No need to spend a lot of The cost of leasing may

money to buy the asset

Leasing

higher than purchasing of

asset in the long term.

Company can obtain asset It is an expensive method to

Hire purchase

without the need to pay

raise fund
The interest rate are very high

Do not have to be repaid

Government Grants

Some

businesses

cannot

apply the grants

1.3.2 From Private Limited Company to Public Limited Company: This kind of business
will bring some advantages for finance of VietSon Tours. In fact, they can sell their share on the
stock exchanges. Therefore, VietSon Tours can raise larger capital without limit number of
shareholders.
Sources
Equity Financing

Advantages

Disadvantages

Management expertise from Demand for financial return

private investor

Potential conflict of interest

Having greater flexible

Preference Share

It will be less risk involved The value of share will

for shareholders.

Debentures

remain the same.

It can be redeemed when Cost

company surplus fund

of

raising

capital

through debenture is high

Before company choose the best financial sources they need to identify their purpose and how
much money need to raise. The kind of sources chosen will depend on the nature of business so
from the analysis below VietSon Tours will have more options to choose the right sources of

finance. In order to gain more extra finance, manager can choose the bank loan as a good
method. In fact, they should also consider the cheapest option available that suitable for their
business purpose and operation.
2.1 The cost of different sources of finance for VietSon Tours:
The financial cost depend on the relationship between borrower and lender when the business
raise capital and expand operation. It can be classified two groups are the tangible cost and the
opportunity cost.
Debt financing (loan): The main cost is interest that the fee for borrowing. In order to apply the
bank, VietSon Tours need to prove their financial institution. When borrower obtain the loan
from bank, they should determine the interest rates and payment term of offer. Because the
interest rates may either be fixed or variable that will effect on borrower. In addition, VietSon
Tours should also ensure the liable contract with bank. The bank is usually charge an
arrangement fee and they can give the settlement penalty if the loan cannot repaid on time.
Equity financing (investment): The dividend and share of profit are the cost of this sources.
Raising of equity financing is difficult for Partnership because they cannot sell the share in the
public. In order to use equity, VietSon Tours must be a Joint-stock company to meet the legal
requirement. Therefore, they should follow the Vietnam legal to ensure the equity financing.
The dividends in cash: It is a share of the after-tax profit of company that shareholder will
receive depend on the number of share. However, VietSon Tours is a partnership so they cannot
pay dividend for any situation.
Scrip dividends: In the case of VietSon Tours become a limited company, it will give to
shareholders instead of paying money.
The leasing: It will led to some type of cost between two partners. The penalty for missed or late
payment is the main cost of leasing. Otherwise, VietSon Tours must pay the cost for repair and
maintain machinery.
The opportunity cost is the value of alternative action. In this case, the opportunity cost is the tax
relief which will reduce the cost of debt capital in business.
In conclusion, with many financial cost and non-financial cost, manager need to
understand all of them to control and avoid the unexpected cost for business.

2.2 The importance of financial planning to VietSon Tours:

The business plan is very important because it provide the guide for operation and expand of
company in long term. It is also play the vital role for success of business to help understand how
to achieve it. Therefore, VietSon Tours should has a good financial planning to prepare future
activities. It is the essential to the success of business. There are some key factors of financial
planning that effect on business.
Asset: The financial planning analyze the fixed asset, current asset and intangible asset before
manager decide the way to expand and gain resources.
Capital: With the support of financial planning, company can build a strong capital foundation to
prepare businesss activities. It is also ensure the financial strategies will consistent with capital
budget.
Income: The financial planning will help VietSon Tours manage income more effectively.
Moreover, financial planning can build the confidence and trust to funding agencies which can
help company to gain more fund and income.
Cash flow will support finance manager determine the cash shortage of each month in order to
apply appropriate adjustment. Besides, manager can also set the goal is to maintain sufficient
cash for company operation in period of time. It is very important in managing cash flow to
avoid unexpected receipt and expenses.
Investment is very importance in the expedition and operation of company. The financial
planning will analyze the investment and sources that can set up business. VietSon Tours need to
attract more investor to raise the finance and develop business. Moreover, the financial planning
will analyze the total liabilities, long-term and short-term debts, and owners equity. Therefore, it
can also give the suggestion when and how to pay interest and dividend for shareholders.
The overtrading occur when the business is too hasty in the expanding operation. The main
caused of problem by an unexpected event or risk. Therefore the financial statement will prevent
unexpected condition to VietSon Tours finance. It give the big changes for VietSon Tours to gain
the stabile position and attract more partner or investor.

2.3 The information need of different decision makers:

In order to make the good decision in business, manager need to know a good information from
various sources such as finance, human resources, production etc. Besides, finance area is the
most important part of company so there are a lot of financial information for different decision
makers according their need and interest.
In order to achieve the effectively performance, decision makers need to get a useful information
about the financial statement of company. Depending on the need of different stakeholder that
they can get a different information through the financial statement or annual report. Each
stakeholder has different need for information.
Shareholders: The information is very essential for stakeholder who are interested in company
especially the investors. From the financial information, they can understand the company
financial condition. Thus, they can make decision to invest or raise money to company. The
shareholder will get a lot of information about the security of capital, annual turnover etc. It is a
useful sources of information for any shareholder.
Manager: They need all information about finance performance to make better decision, finding
the problems and set up the new business plan. The main sources of information for this user is
income statement and balance sheet. Using all of them, manager can forecast and control
unexpected risk. Moreover, it will give the recommendation to support manager direct company
and coordinates the whole work of organization. From these useful information, manager can
decide the best method to raise money when necessary.
Employees: They need to know about the revenue and profit of company in order to identify the
financial situation. Therefore, the employees will decide continue work for organization or not.
Customer: They also a debtor who spend money for companys product and services. Thus, they
need information about the quality, price to purchase.
Supplier: This is the important stakeholder for any kind of business so they want to the profit
and revenue of company in order to identify their partner will enough capital and cash to pay the
cost of raw material. Therefore, the supplier can making decision about continue coordinate with
company in the long-term.
Competitors: Almost companies provide the annual report to public that help external
stakeholders can understand the financials health. The competitor can use the information given

in the annual report to compare their own finance performance on the strengths and weakness.
Therefore, they can making strategic planning for their company.
Financial institution: They are the bank and other lending company use the information to
decide whether to grant borrower with good capital and extend debt securities. They need to
know the financial health to ensure company has ability to pay return on time,
Government: They will use data from financial report to investigation about the profit and
businesss operation to collect the tax payment. It is very important to show the financial health
in the general public.
2.4 The impact of finance on financial statement to VietSon Tours:
The financial statement is the record of all financial activities of company in period of time. It
effect on the term, condition and resources of business that determine the success. In fact, it also
give the good direction for company to achieve their mission and objectives. It provide actual
and relevant information to manager or other people for their purpose. All the relevant financial
information of business activities will present on the financial statement so it can support
financial planner. There are three basic kind of financial statement in financial report:
Balance sheet: It represents the financial position of an entity of company at a given moment in
time. In the balance sheet has three main factors are Assets, Liabilities and Capital of business
Income statement: It is the report show the financial performance in term of net profit or loss.
This Statement is also known as Profit and Loss account (P&L). It will summarize the revenues
and expenses over the entire reporting period. The revenue is used to pay expenses, interest
payment on debt and tax.
Cash flow statement: The success of business depend on managing cash flow effectively. It is
the key accounting report for finance manager. It is the report about companys cash flow
activities, investing and financing activities. All information from cash flow statement will
provide user how to assess the ability of organization to generate cash flow.
Cash Inflow

Cash Outflow

Receipt of bank loan

Purchase of stock, raw materials

Shareholder investment

Loan repayments

Payments from trade debtors

Dividends repayments

Increased bank overdraft and loan

Wages, rents and daily expenses

Cash sales

Income tax, corporation tax, VAT and other tax

Purchase of fixed assets
Table 2 Cash Inflow and Cash Outflow

Managing the healthy cash flow is one of the priority factor of business. Firstly, financial
manager should analyze the cash flow of company by looking at the account receivable, account
payable, credit term and inventory. Manager must ensure the cash balance that allow it to meet
day-to-day expenses. After that, company can find the way to improve the cash receivable.
Focusing on the cash inflow is the vital part of improve cash flow although collecting may not
easy. In addition, the company should focus on the regular cash outflow such as wages, tax to
avoid the problem. Identifying the appropriate sources of finance will support company control
their cash flow effectively. VietSon Tours also focus on improving the inventory management
because it involves monitoring the companys daily finance activities. In addition, the good
financial planning will also support monitor cash flow. VietSon Tours should has the cash flow
forecast to help manager decide whether to lend or raise money and it show the finance position
of company.
Working capital: It is the measurement of businesss current asset and current liabilities
including the purchase of stock, the payment of salaries, wages and other business expenses.
Thus, working capital management is the core of companys operation. It ensure company has
sufficient cash flow in order to meet the short-term debt obligation. Business can manage
working capital by controlling inventory effectively. Firstly, company should determine the
working capital requirement then assess the current risk. Reassess internal working capital policy
such as short-term and long-term finance, equity participation. In addition, the benchmarking is
still play important role for business in order to against the competitor to have information about
working capital requirements. Finally, business should budget an appropriate amount of working
capital to meet the anticipated future need.
Overtrading: It occur when the business run very quickly with insufficient long term capital
especially when business start-up. The main reason for overtrading is the over-expansion of

business. In order to prevent it, VietSon Tours can reduce the level of revenue by increasing the
selling price. Thus solution make increase profit and then reduce the demand immediately. In
addition, managing debts effectively will also support to prevent overtrading for organization.