Current situation of fund raising activities in hung ha paper co ltd and some suggestions for improvement”

Graduation thesis

Academy of Finance

DECLARATION
I hereby declare that this thesis is my own work and effort with the support from my
supervisor, MA.&MSc. Tran Huong Giang. The content and results of research on this
topic are honest and have not been submitted anywhere for any award. Where other
sources of information have been used, they have been acknowledged.
The data and results described in the thesis are derived from the actual situation of the
practice company.
Hanoi, April 25th, 2013
Student

Nguyen Thi Lan Oanh

Nguyen Thi Lan Oanh – CQ47/51.03

Page i


Graduation thesis

Academy of Finance

ACKNOWLEDGEMENT
Besides my personal effort, the support both from my department and the company
during my internship plays a very important role in finishing this graduation thesis.
Firstly, I would like to express my deep and sincere gratitude to my supervisor,
MA.&MSc. Tran Huong Giang. Her wide knowledge and her logical way of
thinking have been of great value for me. Her understanding, encouraging and

personal guidance have provided a good basis for the present thesis. I also wish to
thank all the teachers in Faculty of Foreign languages in general and MA.&MSc.
Tran Huong Giang in particular for their enthusiasm in helping students finish their
important graduation thesis.
Secondly, I also want to thank Hung Ha paper Co. Ltd for giving me permission to
commence this thesis in the first instance, to do the necessary work and to use
departmental data.
I have furthermore to thank the Director, Mr. Dinh Nhu Kiem and the Chief
accountant, Ms. Pham Thi Vinh as well as all staff in Finance – Accounting
department of Hung Ha paper Co. Ltd for instructing and advising me during my
internship process.
My friends from Foreign Language Faculty also supported me in my thesis. I want to
thank them for all their help, support, interest and valuable hints.
Especially, I would like to give my special thanks to my family whose patient love
enabled me to complete this work.
Once again, many thanks for everyone who directly or indirectly helps me complete
this graduation thesis.

Nguyen Thi Lan Oanh – CQ47/51.03

Page ii


Graduation thesis

Academy of Finance

Finally, because of limitation of time and knowledge, mistakes are unavoidable, so I
wish to have more opportunities. I also wish to receive more contribution and
suggestions to make my thesis better.

Nguyen Thi Lan Oanh – CQ47/51.03

Page iii


Graduation thesis

Academy of Finance

ABSTRACT
In the modern economic world, especially when the number of bankrupt enterprises is
rising, fund-raising activities have become more and more important, for every
company in general, and for Hung Ha paper Co. Ltd in particular. Therefore, my thesis
with the topic “Current situation of fund-raising activities in Hung Ha paper Co. Ltd
and some suggestions for improvement” will point out the importance of having a
healthy and effective fund-raising activities.
The main content is reflected in three chapters. The first chapter is about the literature
review for every company, mainly showing some basic definitions, ways to raise fund
in business and some factors affecting fund-raising activities. In chapter 2, by taking a
scenario in Hung Ha paper Co. Ltd, the thesis focuses on an actual situation of fundraising activities. From that, chapter 3 points out the company’s strengths and
weaknesses and suggests some solutions to improve the current fund-raising activities
in Hung Ha paper Co. Ltd.
In conclusion, the thesis has already been complete in comparison with proposed
objectives and targets in the introduction.

Nguyen Thi Lan Oanh – CQ47/51.03

Page iv

Graduation thesis

Academy of Finance

LIST OF ABBREVIATIONS
No.

Abbreviation

Full phrase

1

£

Pound

2

%

Percent

3

B2B

4

BIDV

5

Co. Ltd

6

Dept.

Department

7

e.g.

For example

8

etc

Et cetera

9

i.e.

That is

10

JICA

11

No.

12

ODA

13

Sacombank

14

SeAbank

15

VIB

16

Vietinbank

17

VND

Vietnam Dong

18

WTO

World Trade Organization

Business to business
Bank for Investment and Development of Vietnam
Company limited

The Japan International Cooperation Agency
Number
Official Development Assistant
Saigon Thuong Tin Commercial joint stock bank
Southeast Asia commercial joint stock bank
Vietnam International Commercial joint stock bank
Vietnam bank for industry and trade

Nguyen Thi Lan Oanh – CQ47/51.03

Page v


Graduation thesis

Academy of Finance

LIST OF FIGURES
Page
Figure 2.1

The structure of Hung Ha paper Co. Ltd

21

LIST OF TABLES
Page
Table 2.1

Capital structure of Hung Ha paper Co. Ltd in 2011

23

Table 2.2

Capital structure of Hung Ha paper Co. Ltd in 2012

25

Table 2.3

Change of share capital in 2011 – 2012

27

Table 2.4

Change of retained profits in 2011 – 2012

29

Table 2.5

Change of occupying capital in 2011 – 2012

30

Table 2.6

Change of occupied capital in 2011 – 2012

30

Table 2.7

Change in structure of trade credit in 2011 – 2012

31

Table 2.8

Change of bank loan proportion in 2011 – 2012

32

Table 2.9

Change of bank loan structure in 2011 – 2012

33

Table 2.10

Change of bank short-term loans and borrowings in 2011

34

– 2012
Table 2.11

Change of bank long-term loans and debts in 2011 –

35

2012

Nguyen Thi Lan Oanh – CQ47/51.03

Page vi


Graduation thesis

Academy of Finance

TABLE OF CONTENTS

DECLARATION ..............................................................................................................i
ACKNOWLEDGEMENT ...............................................................................................ii
ABSTRACT ....................................................................................................................iv
LIST OF ABBREVIATIONS ..........................................................................................v
LIST OF FIGURES.........................................................................................................vi
LIST OF TABLES ..........................................................................................................vi
TABLE OF CONTENTS ...............................................................................................vii
INTRODUCTION............................................................................................................1
1. RATIONALE OF THE STUDY .......................................................................................1
2. AIMS OF THE STUDY ..................................................................................................2
3. SUBJECTS AND SCOPE OF THE STUDY ......................................................................2

3.1. Subjects of the study...........................................................................................2
3.2. Scope of the study ..............................................................................................2
4. ORGANIZATION OF THE STUDY ................................................................................3

CHAPTER 1: LITERATURE REVIEW .........................................................................4
1.1.

BASIC DEFINITIONS ............................................................................................4

1.1.1.

Finance.........................................................................................................4

1.1.2.

Sources of finance........................................................................................4

1.1.3.

Fund-raising activities..................................................................................4

1.2.

1.1.3.1.

Definition ..............................................................................................4

1.1.3.2.

Role of fund-raising activities in business ............................................4

WAYS TO RAISE FINANCE BUSINESS ..................................................................5

1.2.1.

Internal sources ............................................................................................5

1.2.1.1.

Personal sources ...................................................................................6

1.2.1.1.1. Savings and other “nest-eggs”............................................................6
1.2.1.1.2. Borrowing from friends and family....................................................6
Nguyen Thi Lan Oanh – CQ47/51.03

Page vii

Graduation thesis

Academy of Finance

1.2.1.1.3. Credit cards.........................................................................................7
1.2.1.2.

Retained profits .....................................................................................7

1.2.1.3.

Sales of assets........................................................................................8

1.2.1.4.

Debt collection ......................................................................................8

1.2.1.5.

Share capital – invested by the founder ................................................9

1.2.2.

External sources ...........................................................................................9

1.2.2.1.

Commercial bank ..................................................................................9

1.2.2.1.1. Bank overdrafts ..................................................................................9

1.2.2.1.2. Bank loans ........................................................................................10
1.2.2.2.

Share issue – outside investors ...........................................................10

1.2.2.3.

Business angels ...................................................................................11

1.2.2.4.

Government grants..............................................................................12

1.2.2.5.

Leasing or Hire purchase ...................................................................12

1.2.2.5.1. Leasing .............................................................................................12
1.2.2.5.2. Hire purchase....................................................................................13
1.2.2.6.
1.3.

Trade credit.........................................................................................13

FACTORS AFFECTING FUND-RAISING ACTIVITIES IN BUSINESS ......................14

1.3.1.

Internal factors ...........................................................................................14

1.3.1.1.

Financial ability of enterprise ............................................................14

1.3.1.2.

Types of business.................................................................................14

1.3.1.3.

Business strategy of enterprise ...........................................................14

1.3.1.4.

Reputation and prestige of enterprise .................................................15

1.3.1.5.

Business result of enterprise ...............................................................15

1.3.2.

External factors ..........................................................................................16

1.3.2.1.

Economy – society situation................................................................16

1.3.2.2.

Financial market development............................................................16

1.3.2.3.

System of State laws ............................................................................17

Nguyen Thi Lan Oanh – CQ47/51.03

Page viii


Graduation thesis

Academy of Finance

CHAPTER 2: CURRENT SITUATION OF ACCOUNTING FOR PRODUCTION
COSTS AND COST PRICE OF FINISHED PRODUCT IN HUNG HA PAPER
COMPANY LIMITED ..................................................................................................18
2.1.

OVERVIEW ABOUT HUNG HA PAPER COMPANY LIMITED ...............................18

2.1.1.

History .......................................................................................................18

2.1.2.

Functions, business field and products ......................................................19

2.1.2.1.

Functions.............................................................................................19

2.1.2.2.

Business field and products ................................................................19

2.1.3.

Business market .........................................................................................19

2.1.4.

Organizational structure.............................................................................20

2.2.

CURRENT SITUATION OF FUND-RAISING ACTIVITIES IN HUNG HA PAPER

COMPANY LIMITED .....................................................................................................22

2.2.1.

Ways to raise finance used in Hung Ha paper Company Limited.............22

2.2.2.

Fund-raising activities in 2011 ..................................................................22

2.2.3.

Fund-raising activities in 2012 ..................................................................25

2.3.

EVALUATION OF FUND-RAISING ACTIVITIES IN HUNG HA PAPER COMPANY

LIMITED.......................................................................................................................27

2.3.1.

Detailed analysis of fund-raising activities in Hung Ha paper Co. Ltd.....27

2.3.1.1.

Share capital – invested by the founders ............................................27

2.3.1.2.

Retained profits ...................................................................................28

2.3.1.3.

Trade credit.........................................................................................29

2.3.1.4.

Bank loans...........................................................................................32

2.3.1.4.1. Bank short-term loans and borrowings ............................................33
2.3.1.4.2. Bank long-term loans and debts .......................................................34
2.3.2.

Strong points ..............................................................................................35

2.3.3.

Weaknesses ................................................................................................36

Nguyen Thi Lan Oanh – CQ47/51.03

Page ix


Graduation thesis

Academy of Finance

CHAPTER 3: SOME SUGGESTIONS FOR IMPROVING THE FUND-RAISING
ACTIVITIES IN HUNG HA PAPER COMPANY LIMITED .....................................38
3.1.

COMPANY ORIENTATION .................................................................................38

3.2.

SOLUTIONS TO RAISE FUND EFFECTIVELY BY HUNG HA COMPANY LIMITED 39

3.2.1.

Continue promoting some effective ways that company has used ............39

3.2.2.

Some solutions to raise fund effectively....................................................42

3.3.

3.2.2.1.

Seeking external sources .....................................................................42

3.2.2.2.

Using internal sources ........................................................................43

3.2.2.3.

Expand market share ..........................................................................44

SOME RECOMMENDATIONS TO APPLY TO THOSE SOLUTIONS ABOVE ...........45

3.3.1.

Recommendations for authorities ..............................................................45

3.3.2.

Recommendations for company ................................................................46

CONCLUSION ..............................................................................................................48
REFERENCES...............................................................................................................50
APPENDIX – BALANCE SHEET....................................................................................

Nguyen Thi Lan Oanh – CQ47/51.03

Page x


Graduation thesis

Academy of Finance

INTRODUCTION
1. RATIONALE OF THE STUDY
Sources of finance are important to every business from new small enterprises to big
companies, because no business venture can exist and survive without finance.
One of the primary goals of starting a business is to make money. However, it takes an
undeniable amount of capital in order to properly launch and sustain a business. This
amount of money for a given venture has to do with the unique goals and needs of the
entrepreneur. It is crucial for a new business to develop resources and additional means
to obtain further capital because without proper financing, a new enterprise may find it
extremely difficult to compete with an already established competition. In addition, the
lack of funding may also lead to a company closing or even worse, bankruptcy.
When a company is growing rapidly, its current financial resources may be inadequate.
Few growing companies are able to finance their expansion plans from cash flow
alone. They will therefore need to consider raising finance from other sources to
achieve their objectives.
However, fund raising is a difficult task, especially for the new, small and medium

enterprises. Fewer than 40 percent of entrepreneurs seeking new business funding each
year actually get that funding. Therefore, knowing which sources are available and
how to access those sources, which is part of fund raising program of a company is
necessary and plays an important role.
Recently, I have an opportunity of internship in Hung Ha paper Co. Ltd, studying their
management system, enterprise culture and going into the details of fund-raising

Nguyen Thi Lan Oanh – CQ47/51.03

Page 1


Graduation thesis

Academy of Finance

activities at Finance - Accounting department. It is a small company of manufacturing
Kraft paper, which also faces this difficulty in fund-raising activities.
From this situation, it is, to my mind, an urgent need to prioritize in proposing some
suggestions for improvement the fund-raising activities of this company. Therefore, I
choose “Current situation of fund-raising activities in Hung Ha paper Company
Limited and some suggestions for improvement” as my graduation thesis topic.
2. AIMS OF THE STUDY
The general aim of this thesis is to study current situation of fund-raising activities in
Hung Ha paper Co. Ltd and through that, propose some suggestions for improvement.
The specific aims of the research are:
First, it is to contribute to the background theory of fund-raising activities, which is
done by pointing out definitions, ways and factors affecting fund-raising activities.
Second, it is to illustrate how a company does fund-raising activities by taking the
scenario at Hung Ha paper Co. Ltd as a case for study.

Third, it is to review the company’s achievements and limitations and to suggest
possible solutions to improve the fund-raising activities in the future.
3. SUBJECTS AND SCOPE OF THE STUDY
3.1. Subjects of the study
- Fund-raising activities in a Limited company.
3.2. Scope of the study
- Contents: fund-raising activities.

Nguyen Thi Lan Oanh – CQ47/51.03

Page 2


Graduation thesis

Academy of Finance

- Space: Hung Ha paper Co. Ltd.
4. ORGANIZATION OF THE STUDY
Apart from the introduction dealing with the rationale, aims, methods, subjects and
scope, and organization of the study and the conclusion with references and
appendixes, this thesis is divided into three chapters:
Chapter I: Literature review. This chapter gives a general overview of fund-raising
activities by companies in general.
Chapter II: Current situation of fund-raising activities in Hung Ha paper Company
Limited. This chapter analyzes the actual situation of fund-raising activities in Hung
Ha paper Co. Ltd.
Chapter III: Some suggestions for improving the fund-raising activities in Hung Ha
paper Company Limited. This chapter mainly focuses on solutions to raise fund
effectively and some recommendations to apply these solutions.

Nguyen Thi Lan Oanh – CQ47/51.03

Page 3


Graduation thesis

Academy of Finance

CHAPTER 1

LITERATURE REVIEW
1.1.

BASIC DEFINITIONS

1.1.1. Finance
Finance is often defined simply as the management of money or “funds” management
(Gove, P. et al. 1961, p6).
1.1.2. Sources of finance
A “source of finance” is how you get your money or money for a major deposit. A
source may be your paycheck from employment, from unemployment, from
investments, or family help (Chris Brooks, 2008, p4).
1.1.3. Fund-raising activities
1.1.3.1.

Definition

Fund-raising activities refer to obtaining capital from investors or venture capital

sources (Jeffrey Timmons, Stephen Spinelli, and Andrew Zacharakis, 2004, p10).
1.1.3.2.

Role of fund-raising activities in business

A business without a funding source will flounder under the weight of its own debt.
Funding is the lubricant and fuel on which a business runs. It makes possible the
smooth design, production and marketing of a product; and it keeps the
administrative functions efficient. It also moves the company forward by fueling
growth and expansion.
In one article, named “Role of fund-raising activities in business”, Mike Stauton has
asserted the importance of fundraising activities to company survival and development.
According to him, raising fund for small business is not the easiest step of starting a
Nguyen Thi Lan Oanh – CQ47/51.03

Page 4


Graduation thesis

Academy of Finance

small business but it is necessary. One major reason why small businesses fail is that
the owner lacks necessary funds. People always raise questions on how enterprises can
raise the money needed to start and develop a small business.
Robert Higgins, one famous author also agrees with Mike Stauton’s opinion about the
role of fund-raising activities in business. He wrote in his work “Analysis for Financial
Management”: Fund is the lifeblood and nerve center of a business; just as circulation
of blood is essential in the human body for maintaining life; fund is essential to smooth
running of the business. It has been rightly termed as universal lubricant that keeps the

enterprise dynamic. No business, whether big, medium or small can be started or run
without an adequate amount of fund. Right from the very beginning, fun is needed to
promote or establish the business, acquire fixed assets, make investigations such as
market surveys, etc, develop product, keep men and machine at work, encourages
management to make progress and create values. Thus the importance of fund-raising
activities cannot be over-emphasized and the subject of business finance has become
utmost important both to the academicians and practicing managers.
1.2.

WAYS TO RAISE FINANCE BUSINESS

There is a number of ways of raising finance for a business. The type of finance chosen
depends on the nature of the business. Large organizations are able to use a wider
variety of finance sources than a smaller ones. A small business can also borrow from
families and friends. In contrast, companies raise finance by issuing shares. Large
companies often have thousands of different shareholders. One way of categorizing the
sources of finance for a company is to divide them into sources which are from within
the business (internal) and from outside providers (external).
1.2.1. Internal sources
The main internal sources of finance for a start-up are as follows:

Nguyen Thi Lan Oanh – CQ47/51.03

Page 5


Graduation thesis

1.2.1.1.

Academy of Finance

Personal sources

These are the most important sources of finance for a start-up. Most start-ups make use
of the personal financial arrangements of the founder. This can be personal savings or
other cash balances that have been accumulated. It can be personal debt facilities which
are made available to the business. It can also simply be the found working or nothing!
These are some forms of personal sources:
1.2.1.1.1. Savings and other “nest-eggs”
An entrepreneur will often invest personal cash balances into a start-up. This is a
cheap form of finance and it is readily available. Often the decision to start a business
is prompted by a change in the personal circumstances of the entrepreneur – e.g.
redundancy or an inheritance. Investing personal savings maximizes the control the
entrepreneur keeps over the business. It is also a strong signal of commitment to
outside investors or providers of finance.
Re-mortgaging is the most popular way of raising loan-related capital for a start-up.
The way this works is simple. The entrepreneur takes out a second or larger mortgage
on a private property and then invests some or all of this money into the business. The
use of mortgaging like this provides access to relatively low-cost finance, although the
risk is that, if the business fails, then the property will be lost too.
1.2.1.1.2. Borrowing from friends and family
This is also common. When self-financing is not enough to provide the needed capital
for a start-up, business owners usually turn to their families, relatives, friends for
further financial support. Friends and family who are supportive of the business idea
provide money either directly to the entrepreneur or into the business.

Nguyen Thi Lan Oanh – CQ47/51.03

Page 6

Graduation thesis

Academy of Finance

These people tend to provide much needed support to the entrepreneur and enjoy the
excitement and success of the new venture. This can also be quicker and cheaper to
arrange (certainly compared with a standard bank loan) and the interest and repayment
terms may be more flexible than a bank loan.
However, borrowing in this way can add to the stress faced by an entrepreneur,
particularly if the business gets into difficulties. Another downside of this source is the
fact that the entrepreneur may give up more ownership of their company. The more
partners involved, the more profit will be divided among all members. And the
supporters sometimes feel that they have the right to offer suggestions concerning the
management of the business. Their suggestions may sometimes be contrary to the
entrepreneur’s strategy and may even strain personal relationships.
1.2.1.1.3. Credit cards
This is a surprisingly popular way of financing a start-up. In fact, the use of credit
cards is the most common source of finance amongst small businesses. It works like
this. Each month, the entrepreneur pays for various business-related expenses on a
credit card. 15 days later the credit card statement is sent in the post and the balance is
paid by the business within the credit-free period. The effect is that the business gets
access to a free credit period of around 30-45 days!
1.2.1.2.

Retained profits

This source of finance is only available for a business which has been trading for more
than one year. This is the cash that is generated by the business when it trades

profitably – another important source of finance for any business, large or small.
Note that retained profits can generate cash the moment trading has begun. For
example, a start-up sells the first batch of stock for £5,000 cash which it had bought for

Nguyen Thi Lan Oanh – CQ47/51.03

Page 7


Graduation thesis

Academy of Finance

£2,000. That means that retained profits are £3,000 which can be used to finance
further expansion or to pay for other trading costs and expenses.
With this source of finance, enterprise does not have to be repaid and no interest is
payable.
However, it is not available for a new business. Moreover, business may not make
enough profit to plough back.
1.2.1.3.

Sales of assets

This money comes in from selling off fixed assets, such as: a piece of machinery that is
no longer needed. This is a medium-term source of finance.
This is a good way to raise finance from an asset that is no longer needed. However,
there is a limit to the number of fixed assets a firm can sell off because business does
not always have surplus fixed assets which they can sell off. And this can be a slow
method of raising finance.
1.2.1.4.

Debt collection

A debtor is someone who owes business money. A business can raise funds by
collecting the money owed to them (debts) from their debtors. This is a short-term
source of finance.
One advantage of this source is that no additional cost in getting this finance, it is
part of the businesses’ normal operations. However, there is a risk that debts owed
can go bad and not be repaid. In addition, not all businesses have debtors, i.e. those
who deal only in cash.

Nguyen Thi Lan Oanh – CQ47/51.03

Page 8


Graduation thesis

1.2.1.5.

Academy of Finance

Share capital – invested by the founder

The founding entrepreneurs may decide to invest in the share capital of a company,
founded for the purpose of forming the start-up. This is a common method of
financing a start-up. The founder provides all the share capital of the company,
retaining 100% control over the business.
The advantages of investing in share capital are covered in the section on business
structure. The key point to note here is that the entrepreneur may be using a variety of

personal sources to invest in the shares. Once the investment has been made, it is the
company that owns the money provided. The shareholder obtains a return on this
investment through dividends (payments out of profits) and/or the value of the business
when it is eventually sold.
A start-up company can also raise finance by selling shares to external investors – this
is covered further below.
1.2.2. External sources
1.2.2.1.

Commercial bank

We tend to consider two types of finance that banks offer to businesses: bank
overdrafts and bank loans:
1.2.2.1.1. Bank overdrafts
If a business spends more money than it has in its bank account, we say that it has
become overdrawn. Businesses will often have an arrangement with the bank whereby
the bank will pay the extra money provided the business will pay them back in a fairly
short period of time, with interest. This is a short-term source of finance and is useful
for small amounts. It is often used by start-ups and small businesses for buying
supplies/ inputs. As a result, an overdraft is a flexible source of finance, in the sense

Nguyen Thi Lan Oanh – CQ47/51.03

Page 9


Graduation thesis

Academy of Finance

that it is only used when needed. Bank overdrafts are excellent for helping a business
handle seasonal fluctuations in cash flow or when the business runs into short-term
cash flow problems (e.g. a major customer fails to pay on time).
1.2.2.1.2. Bank loans
A bank loan provides a longer-term kind of finance for a start-up and will often be for
much larger sums of money, with the bank stating the fixed period over which the loan
is provided (e.g. 5 years), the rate of interest and the timing and amount of
repayments. The bank will usually require that the start-up provide some security for
the loan, although this security normally comes in the form of personal guarantees
provided by the entrepreneur. Bank loans are good for financing investment in fixed
assets such as machinery and vehicles and are generally at a lower rate of interest than
a bank overdraft. However, they don’t provide much flexibility.
Interest – Banks are providing a service by lending money in the form of overdrafts
and loans and banks will charge for this service. When a business takes a loan, it will
agree to pay it back over a period of years but it will also pay an extra charge. This
charge, called interest, is a percentage of the value of the loan.
The interest rate is set by the State bank and it varies. The higher the interest rate is, the
greater the percentage of the loan that the business must repay. In other words, if the
State bank raises interest rates, a business with a loan will find it has to pay the bank
more each month as it pays off its debt. Likewise, a fall in interest rates will mean that
the business will have lower costs (and therefore more profit).
1.2.2.2.

Share issue – outside investors

Share issue is an important source of finance for limited companies. A share issue
involves a business selling new shares that entitle the shareholders to share in the

Nguyen Thi Lan Oanh – CQ47/51.03

Page 10


Graduation thesis

Academy of Finance

control of the business. Each share gives the shareholder a vote on the direction of the
company. This usually means that the shareholder can elect the board of directors of
the company each year. If the shareholder does not like the way the directors are
running the business, they can elect new directors. This is a good incentive to the
directors to run the business well and make a profit which will be paid to the
shareholders in the form of dividends. The more shares a person holds, the more
control they have over a company. If one company wanted to take another company
over, it could arrange to buy over 50% of that company’s shares. This would give it a
majority of control and, therefore, ownership.
Issuing new shares can raise a lot of capital that can be used for expansion (buying
more fixed assets, etc). It is a long-term source of finance. If the total number of
share rises, the votes of existing shareholders will have slightly less significance
and they will have less control. The business will also have to pay dividends on a
larger number of shares.
1.2.2.3.

Business angels

Business angels are the other main kind of external investor in a start-up company.
They are wealthy, entrepreneurial individuals who provide capital in return for a
proportion of the company equity. They take a high personal risk in the expectation
of owning part of a growing and successful business. Business angels are
professional investors who typically invest £10,000 - £750,000. They prefer to

invest in businesses with high growth prospects. Angels tend to have made their
money by setting up and selling their own business – in other words they have
proven entrepreneurial expertise. In addition to their money, angels often make their
own skills, experience and contacts available to the company. Getting the backing
of an angel can be a significant advantage to a start-up, although the entrepreneur
needs to accept a loss of control over the business.
Nguyen Thi Lan Oanh – CQ47/51.03

Page 11


Graduation thesis

Academy of Finance

Venture capital, or “private equity”, is also mentioned as a source of finance for startups. Venture capital is a specific kind of share investment that is made by funds
managed by professional investors. Venture capitalists rarely invest in genuine startups or small businesses (their minimum investment is usually over £1,000,000; often
much more). They prefer to invest in businesses which have established themselves.
A start-up is much more likely to receive investment from a business angel than a
venture capitalist.
1.2.2.4.

Government grants

Governments, successful entrepreneurs such as Bill Gates and large corporations, who
keen on promoting their social responsibilities, are all increasingly seeking to help the
smaller business sector with grants and soft loans. While the sums may be small they
can make a big difference to a project’s viability. Often the problem is identifying what
grants are actually available, although the Internet has made the research easier.
These grants don’t have to be repaid. However, not all businesses may be eligible for a

grant, only certain conditions may apply, e.g. location.
1.2.2.5.

Leasing or Hire purchase

1.2.2.5.1. Leasing
This method allows a business to obtain assets without the need to pay a large lump
sum up front. It is arranged through a finance company. Leasing is like renting an
asset. It involves making set repayments. This is a medium-term source of finance.
This source can help business have the use of up to date equipment immediately.
Moreover, payments are spread over a period of time which is good for budgeting.
However, it can be expensive and the asset belongs to the finance company.

Nguyen Thi Lan Oanh – CQ47/51.03

Page 12


Graduation thesis

Academy of Finance

1.2.2.5.2. Hire purchase
This method allows a business to obtain assets without the need to pay a large lump
sum up front. It involves paying an initial deposit and regular payments for a set period
of time. The main difference between hire purchase and leasing is that with hire
purchase after all repayments have been made, the business owns the asset. This is the
medium-term source of finance.
Like leasing, this source can help business have the use of up to date equipment
immediately, and, payments are spread over a period of time which is good for

budgeting. In addition, once all repayments are made the business will own the asset.
However, this is an expensive method compared to buying with cash.
1.2.2.6.

Trade credit

Trade credit, also known as supplier credit, vendor credit, or B2B financing, is the
largest use of capital from business to business and remains the number one alternative
to personal and small business loans.
Trade credit is an agreement where a customer can purchase goods on account (without
paying cash), paying the supplier at a later date. Usually when the goods are delivered,
a trade credit is given for a specific amount of days -30, 60 or 90. Basically, this is a
credit a company gives to another for the purchase of goods and services. The amount
of days for which a credit is given is determined by the company allowing the credit,
and is agreed upon by both the company allowing the credit and the company receiving
it. With the extension of the payment date, the company receiving the credit essentially
could sell the goods and use the net proceeds to pay back the debt. This type of credit is
sometimes given to encourage sales. At times, a supplier may give a discount, if the
customer pays within a certain period of time. For example, a 2% discount if payment
is received within 10 days of issuing a 30-day credit.
Nguyen Thi Lan Oanh – CQ47/51.03

Page 13


Graduation thesis

Academy of Finance

Trade credit also includes advances from customers.

1.3.

FACTORS AFFECTING FUND-RAISING ACTIVITIES IN BUSINESS

There are lots of factors affecting fund-raising activities in business. Some of them are
listed below divided into 2 groups: internal factors and external factors:
1.3.1. Internal factors
1.3.1.1.

Financial ability of enterprise

Need of finance for investment activities of enterprises is very big and continuously
generating. The general situation of current enterprises is that internal sources of fund
is limited and often not enough to meet the need. When the enterprise does not have
enough financial ability, it cannot carry out its investment projects. Therefore, to have
enough finance to realize investment activities, the enterprise has to raise more funds
under many forms. When doing fund-raising activities, the enterprise has to pay an
expense, called fund raising expense. If the enterprise has a high self - financing
ability, it can reduce this expense.
1.3.1.2.

Types of business

For the type of business, if state-owned enterprises switch the ownership such as
implementing equitization, switch the management mechanism, there will be more
opportunities in fund-raising activities. If the companies are allowed to issue shares and
public stocks which are listed publicly on the stock market, the ability to diversify
investment fund-raising activities is more favorable.
1.3.1.3.

Business strategy of enterprise

Each enterprise builds itself a particular business strategy. The business strategy of the
enterprise is built basing on determining its current position in the market, its strong
points, weaknesses, opportunities, challenges as well as predicting changes in business
Nguyen Thi Lan Oanh – CQ47/51.03

Page 14


Graduation thesis

Academy of Finance

environment in the future. Through business strategy, enterprise will be able to decide
to narrow or expand the fund-raising activities in terms of scale, to change the rate of
all kinds of finance sources, to increase or reduce mobilization expense. With such a
tremendous effect, if the business strategy is chosen correctly, finance sources are
exploited and fund-raising activities will be effective.
1.3.1.4.

Reputation and prestige of enterprise

This can be considered as intangible assets of enterprise. Prestige includes prestige of
enterprise in the market and prestige of members in Broad of Directors. Reputation of
enterprise is a highly valuable asset in fund-raising activities because when in the
market, the business has already created its own image, investors and creditors will
trust in the company. It can help the enterprise stabilize and easily increase the number
of capital, as well as reduce fund raising expense.
1.3.1.5.

Business result of enterprise

Business result of enterprise is one of the factors creating reputation and prestige of
enterprise in the market. If the enterprise makes profits, investors and creditors will see
it be safe investment environment and believe that the funds which they invest in that
company will be lucrative. Thus, they are willing to invest in that company. The fundraising activities of the enterprise, therefore, will be more favorable.
On the contrary, if the business result of enterprise is not good, investors and creditors
will be more cautious, serious and careful if they have the intention to invest in this
company. Not everyone is willing to adventure with his money.

Nguyen Thi Lan Oanh – CQ47/51.03

Page 15