Summary: Short Term Financing

Short Term Financing

Berkshire must be aware of their short term financing because, these short term financing sources would help Berkshires to carry out their day to day business activities and also make them more convenient to access long-term finance activities to expand their business. Companies might not run for long term without day to day operations. Short term financing is refers to the way of funding short term deficits and financial obligations that must be settled within in a period of 12 months.

Some methods for Short-term financing are as follows

Bank Overdraft

This is a facility allowed by the bank to its customers to withdraw more than what is available in their current account balance. Normally there will be less documentation

In other words, Berkshire can sell some of its debtor invoices(receivables) to a third party financial organization (factor).The transaction normally happens at a discount(advanced up to 80% in return for a commission and interest is charged for the amount advanced) in return for prompt cash, but with recourse of liability. If the original debtors do not pay, factor will not take the responsibility and the eventual liability will come back to Berkshire.

Short Term Loans

If the company faces financial deficit for a while then short term funding would be a good one. Short term loan is for less than a year to finance our short-term working capital needs. Banks might be willing to provide a short-term loans. Borrower must be able to show that the loan can be repaid in a certain amount of time. Since Berkshire is a large partnership organization we can show more securities for bank to get the short term loans.

Long term

The preference dividend should be paid before ordinary dividend if distributable profits are available, the preference share capital will be repaid before ordinary share capital at the time of liquidation of the company. Normally the preference shareholders will not have the voting rights.

2. Retained Earnings

“The percentage of net earnings not paid out as dividends for shareholders, but retained by the company to be reinvested in its core business activity, or to pay debt. It is recorded under shareholders' equity on the balance sheet”. Berkshire can use the retained earnings to finance in their new hospital and testing clinic.

3. Venture Capital

Definition of venture capital is Money provided by investors to startup firms or increase the portfolio of business with high growth potential and this would give high rates of return. These investments are high-risk investments. They may look for annual returns of 25 to 30 percent on their overall investment portfolio. This method of raising capital is popular among new companies, which cannot raise funds by issuing debt.

4. Personal