Advance payment to suppliers
Regeneration through Education (RTE) is a Charity Organization formed by several trustees where majority of them are directors of different Companies. The Organization is a Non-profit Organization whose main objective is to influence people in society through rejuvenating their education potential.
This applies to the young people in society who have the urge and interest of pursuing their education but do not have the funds to see them through the system (Hartigan, 2006). However, the biggest challenge that RTE face is that it needs to make an investment worth £100, 000 in fittings and furniture for the new building.
However, The Vital Office Furniture Limited, which is the Firm to supply the materials, demands 50 percent deposit from the Charity before they deliver the materials to Charity Organization. To make it worse, they demand the balance to be paid within 10 days of delivering the goods (Snyder, 2006). The only problem is that the supplier is demanding a lot of down payment and yet the Charity Organization members have no record of accomplishment of the goods.
The trustees are very right to be concerned about this issue because they should not risk their investment since it might cost them a lot. In fact, it might cause them to shut down if the goods are not delivered since it is a Non-profit Organization meaning that it might take a long period to meet its objectives.
Nevertheless, there are several ways through which such investment risks can be reduced as far as this transaction is concerned (Drucker, 2002).
To begin with, RTE Charity can reduce these risks through diversification. Instead of purchasing all those goods from Vital Office Furniture Limited, they may opt to purchase other goods from other stocks so that they reduce their worries about paying too much to an Organization they have no records of accomplishment. For instance, they may decide to purchase fittings from a different stock Company and purchase furniture from Vital Office furniture.
Secondly, they can decide to purchase the goods from industry or manufacturers direct without getting them from stock Companies. Besides, they should also employ the system of diversity meaning that they buy the goods from several distinct industries to protect themselves from industry risks. Yet, they can still reduce portfolio risks through employing global diversification (Malamut and Blach, 2008).
For instance, The Vital Office Furniture Limited located in US is charging them high deposit thus; they may opt to purchase the goods from a UK stock Company where they charge little down payment than that demanded by Vital Company. The following are other ways of reducing financial risks.
- RTE Charity Organization can employ hedging method, which is known to be a very strong tool to minimize risking within the stock market. The most famous hedging products in the market today are options and futures. These insurances contracts help to hedge against deteriorating stock prices. It is the best system for RTE Charity Organization because insurance can help them secure their investment against doubtful Firms like Vital Furniture (Arnott, 2005).
- RTE Charity should also set aside good some of money as it pays down payment to any stock Company so that it can remain financially secure. This is because the Firm’s objective is to help the society in education matters and not profits making. Therefore, in case it does not secure its finances then it may eventually be declared bankruptcy. Any Firm without sufficient funds that get into financial problems may end up selling all its stocks for fewer amounts before closing down (Block, 2002). This means that with that £100, 000, RTE Charity should not spend more than 40 percent of the funds on supplies especially if they are not sure about the accomplishment records.
- The other better option is that the RTE Charity Organization should carry out thorough research concerning The Vital Furniture Company and all about investment before opting to risk that entire sum on unaccomplished records. This will give the trustees good knowledge about the Company and help them to avoid risking their money on it. Furthermore, research can help them come up with a good stock selection thus maximizing their investment returns.
- Lastly, the RTE trustees need to understand fully the choice of strategy because they must strive for independent advice from financial advisors (Salins, 2000).
Charity reporting research
The trustees of RTE are to file their annual financial statements to certain about transparency of their financial affairs. First, the underlying principle behind the filing requirement for the RTE Charity is, identify the advantages and disadvantages of renting a room to offer education courses to the society and to build their own structure.
Advantages of renting a room over building their own
Renting a house or a room is a good deal because to begin with, the RTE Charity Organization is not a profit-oriented Organization meaning that they may begin establishing a building and fail to complete it or take longer time than expected to accomplish it. The process may be time-consuming because they may fail to meet their objectives in time due to the length of time the building may take to complete (Drucker, 2002).
Therefore, it is advisable that they decide to rent a room and build their own at later time when they have stabilized and doing well. Besides, renting a room is somehow stress free because after paying the rent, they may now be free to do whatever they wish since the room is under their care. They may be free from expenses such as wear and tear, repairs of the building, heating and lighting among others.
The RTE’s annual income is £2.5 m, which is a good amount that can make them expand quickly if they begin by renting a room. Moreover, they may be successful and accomplish their educational mission where they intend to start from and opt to move somewhere else. With rental room, it is very easy to shift from one place to another without feeling any difficulty (Block, 2002).
In fact, their Organization must be very flexible in terms of movement because they may expand and decide to move to other regions. Lastly, they can only take a little period to settle and stabilize when they are in a rental room whereby they can establish great investment.
However, when they decide to construct their own building, they may take a very long time before they accomplish the building and may as well fail to do so the construction can take more than they have (Baird, 2000). The best way to approach it is to employ Organizations like The Rent a Room Scheme, rent control and rental Real Estate Company.
These ensure no losses of money to brokers and ensure an individual acquires quality rental room. Nevertheless, renting a house also has some disadvantages in comparison to having own structure where a Company can do whatever it wishes to do with it. Several people and Organizations rent rooms privately and it greatly depends on how well they can get along with it when ordinary areas are encompassed.
Disadvantages of renting a room Over Building their Own
First, renting a room means the RTE Charity Organization will have to be situated at a place where there are either residential rooms or other Organizations. The problem with that is that if the people under that roof eventually dislike one another due to one reason or the other, the common areas will be in problem (Hartigan, 2006). For example, if it is an Organization, problem like noise making and destructions will be highly experienced as well as the hygiene.
May be they share washrooms; they may begin differing on the procedure of cleaning them as well as the way they are used. For instance, the RTE Charity Organization will be dealing with young people who wish to pursue their education meaning that the place will be receiving many guests who will definitely use the washrooms. There is no guarantee that they would not dirty them up thus causing a lot of noise and disagreements with the other party[s] (Ramirez, 2010).
Therefore, as far as common areas are involved, there is high probably that misunderstanding may occur making the neighbors not to live in harmony. Therefore, it is better for the trustees of Charity to re-examine that situation and opt to construct their own room to avoid such differences and misunderstandings. Besides, another major difference may occur when it comes to paying bills, which include power bills, water bills, communication bills, and network bills among others.
For example, if they rent a room at a residential area, the other tenants may claim that the Organization is using a lot of power on its daily operations while they are using very little power. This means that the Organization may be forced to pay half of the entire electricity bill. At the same time, the residents on that same building take advantage of the Organization and maximize the usage of power (Arnott, 2005).
For instance, one resident may have a television, a sound system and fridge but since he or she want to take advantage of the Organization, he or she opt to add on heaters, electric iron, coils, and many other electricity gadgets in order to make full use of the electricity that is majorly paid by the RTE Charity Organization.
The same case would be experienced in communication bills, network bills, water bills and many other involved bills. That means the Organization may slowly decline and after sometimes, close down due to lack of funds that according to me would have been misused (Malamut & Blach, 2008).
Therefore, to avoid sharing of bills with other Organizations or residential, it is important for the trustees of the Charity to decide to structure their own room and carry out their activities in peace as well as maintain peace with their neighbors.
Besides that, building their own room would mean having an extra asset, which they can rely on even when they close down their business. They can rent a person or an Organization and still earn out of it. In fact, they may as well wish to shift to another area, which does not mean that they would have lost their money putting up the building, they will still earn out of it.
To wind up, through building their own room, the Charity Organization can design it according to their wishes and modify it later according to their interests (Baird, 2000).
However, in a rental room, the land load might be too lazy in the sense that he cannot even renovate the room when some faults occur. In that case, the trustees would not be satisfied with the place they are thus opting to move out. Eventually, they may shift from one place to another without settling down and meeting their objectives. Construction of their own room would minimize such movements and help them to settle very quickly (Kleiman, 2010).
Comparison To Company filing requirements
There are several differences between Profit Company and Non-profit Organization like RTE Charity Organization. At the outset, the ultimate aim of profit Organizations is to make profit while the aim of Charity Organization is to help and support the community in one way or the other.
The profit Organizations have to create profit in order to grow and expand as well as survive in the competitive market field (Salins, 2000). Charity Organization on the other hand focuses on helping the community meaning that it is not into any other competition in the market field. However, most of them strive to excel in whatever they undertake in order to attract donors and well-wishers to support them.
Therefore, since most of the trustees of Charity are directors of their own Companies, their focus should not be to make profit. The trustees should not become reluctant particularly in contributing money so that Charity may not fail. The other difference is concerning ownership of business.
A profit Company is developed when investors combine and transmit assets, money and talent to initiate the new corporation. The corporation then becomes a fictitious individual as far as the law is concerned, takes title and possession of the assets as well as gives back the assets and possession shares to those who contributed the assets (Malamut & Blach, 2008).
With a Non-profit Organization such as the RTE Charity Organization, people come together and issue out assets, money and/or talent to establish the corporation. However, with this type of Organization, the individuals who create it do not acquire any legal possession in the corporation and, in addition to that, have no assurance that they will be in a position to preserve control of the corporation once established.
All the assets contributed are now to be put to ground to issue service for which the Organization was established for by the Organization’s board of directors. Therefore, the trustees of Charity should be aware of that and try to focus on the purpose of establishing the Organization (Snyder, 2006). Lastly, there is a major difference between for profit and Non-profit businesses in terms of the board of directors.
In both scenarios, the same individuals establish the board of directors who initiated the corporation and in both cases, directors are issued with rigid principles. However, things change when it comes to time to re-elect and replace these members of board. For a profit Organization, every shareholder is entitled to one vote and owners of manifold shares contain manifold votes.
These votes are termed in terms of percentage shares whereby a group possessing 51 percent or more of the assets takes control of both the board and the business with their controlling number of votes (Ramirez, 2010). A Non-profit Organization on the other hand has no shares meaning that no votes thus nobody is controlling the board. The board itself elects its controllers and is free to replace the persons according to its terms.
References
Arnott, R., 2005, “Time for Revisionism on Rent Control?” Journal of Economic Perspectives 9, no. 1 (1995): 99–120.
Baird, C., 2000, Rent Control: The Perennial Folly. Washington D.C.: Cato Institute, Washington.
Block, W., 2002. “A Critique of the Legal and Philosophical Case for Rent Control.” Journal of Business Ethics 40: 75–90.
Drucker, P., 2002, “What Business Can Learn from Nonprofits”. Harvard Business Review: 1-7:54-65
Hartigan, P., 2006, ‘It’s about people, not profits’, Business Strategy Review: 1-7: 60-65
Kleiman, L. S., 2010. Management and executive development. Business Strategy Review: 1-7: 70
Malamut, E. & Blach, J. 2008, ABA Code Revision Raises Concerns for Democracy and Parliamentary Law in Nonprofits. National Parliamentarian, Volume 69, No. 1
Ramirez, Jr., L., 2010, “The Case for Social Benefit Organizations”.MiniDonations.org Blog.
Salins, D, 2000. The Ecology of Housing Destruction: Economic Effects of Public Intervention in the Housing Market. New York: New York University Press.
Snyder, R., 2006, Nonprofits: On the Brink: How Nonprofits have lost their way and some essentials to bring them back. New York: New York University Press.