1.8 raising finance - moodle

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