1.8 raising finance - moodle
DESCRIPTION
AS BusinessTRANSCRIPT
What do you need to buy?
1) Ice-cream parlour2) Hairdressers3) Café4) Clothes store
How might you fund this?
Do Now!
Raising Finance
By the end of this lesson you should be able to:
1. Explain the difference between internal and external sources of finance
2. Understand the various sources of internal and external finance
3. Analyse the appropriateness of various sources of internal and external finance for different needs.
Learning Objectives
What are internal sources of finance and where do they come from?
Owners personal funds Friends and family Retained profit Income from the sale of an
asset
Internal Sources of Finance
Discuss in pairs and come up with….
3 advantages of this source of finance.
3 disadvantages of this source of finance.
LO1) Explain the difference between internal and external sources of finance
Loan Capital – Overdraft
What is an overdraft? Temporary loan from a bank that allows a business to
withdraw excess money from their account, up to an agreeable limit.
External Sources of Finance
Benefits Drawbacks
1. It is an ………….….. source of finance.
2. Quick and …... .. to arrange.
3. Can be used to manage ……... flow when a business has a shortage.
1. …………… can be charged for use of an overdraft.
2. Arrangement ……….. can be high.
3. Overdraft can be ……….. at short notice.LO1) Explain the difference between internal and external sources of
finance
Loan Capital – Bank loan
What is a bank loan? A sum of money lent for a fixed period of time, repaid
over an agreed schedule. The cost of the loan is paid in interest.
External Sources of Finance
Benefits Drawbacks
1. ………… is fixed for the period of the loan. Making ……………. easier.
2. The loan is …………. for set period.
3. The ……….. does not get a say in how the business is run.
1. …..…… is paid regardless of whether the business is making profit.
2. The loan may have to be secured against a personal ……………
LO1) Explain the difference between internal and external sources of finance
Share Capital
What is a share capital? Money paid by an investor for a share in the business.
What does this mean? Owners sell a share/ part ownership of the business. Capital does not have to be paid back. Shareholders paid through dividends when profits received.
External Sources of Finance
Business Angel
• Individual wanting to invest• Can invest between £10, 000
and £250,000
Venture Capitalist
• Professional Investor or business
• Can invest £250,000 or moreLO1) Explain the difference between internal and external sources of finance
LO2) Understand the various sources of internal and external finance
Can be used to manage cash flow when a business has a shortage?
OVERDRAFT
Overdraft, Loan or Share Capital?
LO2) Understand the various sources of internal and external finance
It may have to be secured against a personal asset.
BANK LOAN
Overdraft, Bank Loan or Share Capital?
LO2) Understand the various sources of internal and external finance
It be withdrawn at short notice.
OVERDRAFT
Overdraft, Bank Loan or Share Capital?
LO2) Understand the various sources of internal and external finance
Capital does not have to be paid back.
SHARE CAPITAL
Overdraft, Bank Loan or Share Capital?
LO2) Understand the various sources of internal and external finance
Interest is paid regardless of whether the business is making
profit.
BANK LOAN
Overdraft, Bank Loan or Share Capital?
Raising finance in action
Watch the Dragon’s Den Video….
Find out more about the Kirsty’s brand.
LO2) Understand the various sources of internal and external finance
In pairs, you are to act as business advisors…..
Suggest a suitable source of finance for each given business including the reasons for your choice.
Prepare to feedback to the rest of the group.
Advising Businesses
LO3) Analyse the appropriateness of various sources of internal and external finance for different needs.
A disadvantage of using your own money to raise
finance.
Write on your whiteboard….
An advantage of a venture capitalist
to raise finance.
Write on your whiteboard….
A disadvantage of using share
capital to raise finance.
Write on your whiteboard….
An advantage of using a bank loan
to raise finance.
Write on your whiteboard….
You should now be able to:
1. Explain the difference between internal and external sources of finance
2. Understand the various sources of internal and external finance
3. Analyse the appropriateness of various sources of internal and external finance for different needs.
Re-cap Learning Objectives