Financial appraisal
Advance payment is usually required by suppliers of goods with an aim of ensuring that the buyers of the goods actually pay for the goods when they are delivered. In addition, advance payment ensures that the individuals who have ordered the goods do not fail to receive the goods when supplied. However, there is a possibility that the suppliers may not be able to supply the goods and this can lead to loss of cash to the individual buying the goods. Advance payments are usually made to suppliers who are known to the business. These suppliers should be trustworthy and able to supply goods within the required time. The amount given to the suppliers as advance payment should also be reasonable such that it does not make it impossible to operate other business activities (Davis, 1975).
In the case of Regeneration through education limited (RTE), there is a great risk in giving the advance to the suppliers. First, the suppliers are new to the company and therefore the company may not be sure about the reliability of the suppliers. The new suppliers may fail to meet the quality of the furniture required by the company. In addition, the new suppliers may not be able to supply the furniture to the company at the required time. This is because the new suppliers have never served the company again so the company is not predicting their reliability. In addition, there is another risk in that the suppliers may completely not be able to supply the furniture even though they might have received the advance. This may lead to a great loss to the company.
The suppliers are demanding a very large amount of advance payment. This large amount of advance is very adverse to the cash flow of the company because it is likely to reduce the working capital of the company. A lot of cash is required to ensure that the construction of the buildings by the company is in progress. Therefore issuing 50 percent of the cost of furniture may make it difficult to ensure that the building s is constructed without delays due to lack of funds. Furthermore, the furniture is required after the completion of the buildings. The company should therefore negotiate for less amount of advance payment to the suppliers. The company could alternatively order less amount of furniture to find out whether the new supplier is able to supply the furniture in time. This will ensure that enough money is available to run other affairs of the company.
In order to reduce risks in the company, the company should ensure that it deals with customers known to them (Peter, 1989). These suppliers should be reliable such that they are able to deliver quality furniture at the required time. In addition, the company should ensure that the suppliers are able to accept a reasonable advance before supplying the furniture. This will ensure that the company always has enough cash to run the normal activities of the company. The company will also be able to deal with any future uncertainties. This will reduce the risks faced by the company.
Even though nonprofit making organizations do not seek to gain profit from their operations, it is usually necessary for them to keep proper accounting records which should then be published to the public (Davis, 1975). There are various reasons for this activity. First, it is a requirement by law that any charitable organization that receives and spend 2 million dollar per year should keep proper accounting records and publish these financial statements. In this case, regeneration through trade limited spends more than 2 million dollars annually and is therefore required by law to publish financial records.
Publishing the financial statements is very important to charitable organizations because it increase the confidence level and trust of the society to the organization. Trust of the society is very important because it influences the survival of the charitable organization. If the members of the society have trust to the organization, then they will pass information to the individuals who fund the organization and this will make the funders to provide more funds to the organization (Peter, 1989). However, if the charitable organization does not publish the financial statements, the member of the society may not be aware of the activities of the organization. They may therefore lack trust in the organization. Negative information about the organization may discourage the donors who may refuse to fund the organization any more. This may bring the life of the charitable organization to an end.
When the charitable organizations are required to publish their financial statements, the management is therefore required to be transparent in their activities. This ensures that no funds are misappropriated. The managers are required to be accountable in all their activities. The managers are also able to allocate funds to the activities that are most beneficial to the society. This means that funds provided for by the donors are used carefully for the benefit of the members of the society. The government is also able to evaluate whether the charitable organizations are performing the activities they were started to do. If the government finds out that the organization is benefiting the society, it can allow the organization to continue operating. In addition, the government can provide funds to such organization to facilitate its activities. Therefore publishing the financial statements benefits both the charitable organization and other parties such as the society, donors and the government.
Charitable organizations are required by law to prepare the trustees annual reports. The trustee’s annual report has several contents (Michael, 2008). First the report should clearly show the aims and objectives of the charitable organizations. These aims and objectives clearly describe the reasons as to why the organization came into existence. All the donors, funders, government and the members of the public are able to know why the charitable organization was created by reading through the trustee’s annual report. By knowing the objectives of the charitable organizations, the members of the society become aware of how they can benefit from the activities of the charitable organization. The government is able also to assess whether the charitable organization is of any importance to the society. This objective of the charitable organization is very important because they help to motivate the donors to fund the organization so that it can meet its objectives.
The trustee’s annual report also shows the structure of the charitable organization. The structure shows the individuals who manage the charitable organization. I n addition, the structure shows whether the organization is an affiliate to another organization. t e structure of an organization helps the donors, government and the members of the society to assess whether the manager of the charitable organization are able to manage the funds donated to the organization. The structure of the organization can show whether the organization is well organized to achieve the set objectives.
The trustees’ annual report should clearly show the activities of the organization in a given financial year. All these activities should be pursued with a aim of achieving the set objectives. By showing the activities of the charitable organization, the government is able to determine whether the organization is carrying out legal activities. The society is also able to determine whether the activities carried out are benefiting them. In addition, the founders of the charitable organization are able to assess whether their funds are used well by evaluating the activities carried out in a given year by the charitable organization.
The trustee’s annual report should show the achievements of the charitable organization. These achievements help to determine whether the members of the society or the stakeholder’s have so far benefited from the organization (Michael, 2008). These achievements are very important in that they help to motivate those who fund the activities of charitable organization. The achievement of the charitable organization also helps to increase the confidence level of the members of the society to the organization. By this, the donors are motivated to provide more funds to the organization.
The trustees’ annual report should also show the various sources of funds and expenditure. The accounts should show voluntary donations from individuals, the income from activities carried out by the organization and the income from charitable organizations. This ensures that the donors are able to see that their funds were received and spent. This helps to avoid situation where funds are donated to the organization and then misused.
There are many similarities and differences between charitable organizations and companies. One of the similarities is that both organizations are separate legal entities from the members. This means that the assets reported in financial belong to the organization and not the members. The financial statements therefore show the assets owned by the organizations.
The other similarity between the charitable organization and the companies is that both of them have financial statements that show more cash inflows than outflows in order for them to continue with their normal activities (Chuck, 2012). In addition, the financial statements of both show activities that are important in financing the organization and activities that spend the finances.
The other similarity between the financial statements of the companies and the charitable organizations is that they both aim at providing a particular service or goods to the members of the society. This depends on the objective of the organization.
There are however many differences between the companies and charitable organizations. One of the differences is that the charitable organizations mostly receive their revenue from donors and other charitable organizations. On the other hand, the companies receive revenue from income generating activities and funds borrowed from financial institutions.
The other difference between the financial statements of a charitable organization and a company is the amount of profit that can be re invested is usually limited for the charitable organizations. On the other hand, the amount re invested by the companies is not limited. This is due to the fact that the charitable organizations are not taxed as opposed to the profits generated by the companies.
The profits generated by the companies are usually generated as cash to the investors. This is because the main aim of the company shareholders is to get returns from the invested funds (Chuck, 2012). The excess of expenditure in a company is therefore called profits. On the other hand, the excess of expenditure in charitable organizations are called accumulated funds. These funds are however not distributed to the members of the organization. Instead, these funds are used to provide goods and services to the members of the society as stated by the objectives of the organization. This difference is caused by the fact that the company aims at generating funds to the members. On the other hand, the charitable organization aims at benefiting the society and not the founders.
References
Davis, K; R. Blomstrom (1975). Business and Society: Environment and Responsibility, New York: McGraw-Hill.
Chuck, (2012), for profit vs. non profit making organizations. Hubpages Inc.
Helfert, Erich A. (2001). The Nature of Financial Statements: The Cash Flow Statement. Financial Analysis - Tools and Techniques - A Guide for Managers. McGraw-Hill. p. 42.
Bodie, Zane; Alex Kane and Alan J. Marcus (2004). Essentials of Investments, 5th ed. McGraw-Hill
Malamut, 2007, Charity on Trial: What You Need to Know Before You Give / Doug White.
Michael E. and Blach, Thomas J. (2008). ABA Code Revision Raises Concerns for Democracy and Parliamentary Law in Nonprofits. National Parliamentarian
Drucker, Peter (1989). What Business Can Learn from Nonprofits. Harvard Business
