financing growth
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3.4_financing_growth_starter_activity.docx | |
File Size: | 38 kb |
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Key term: FINANCING A BUSINESS - How a business obtains money and other financial resources to start up, expand and potentially pay off losses it has made.
Businesses can access funds either from within their company or they can access external sources of finance.
Key term: INTERNAL SOURCES OF FINANCE - finance which is obtained within the business such as retained profit or the sale of assets.
Key term: RETAINED PROFIT - profit which is kept back in the business and used to pay for investment in the business.
- Profit made by the business in earlier years
- Only available to profitable businesses and can be opposed by shareholders
- No interest and available immediately
- Only available to profitable businesses and can be opposed by shareholders
- No interest and available immediately
Asset sales are when a business sells off buildings, equipment, land or other businesses that they own e.g. ITV selling Friends Reunited
- Can provide large sums of money depending on what is sold
- A business can sell assets for cash, or sell them and lease them back
- Can provide money without interest charges
- The business may need the asset later
- Will have to pay the new owner which will reduce profits
- Can provide large sums of money depending on what is sold
- A business can sell assets for cash, or sell them and lease them back
- Can provide money without interest charges
- The business may need the asset later
- Will have to pay the new owner which will reduce profits
Key term: EXTERNAL SOURCES OF FINANCE - finance which is obtained from outside the business such as bank loans and cash from the issue of new shares.
Key term: EQUITY OR SHARE CAPITAL - the monetary value of a business that belongs to the business's owners. In a company, this would be the value of their shares.
Key term: SHARE - a part ownership in a business; for example a shareholder owning 25% of the shares in a business owns a quarter of the business.
- Only companies can sell shares - shareholders own a part of the company
- Can be sold through the Stock Exchange - PLC's
- No interest is charged on these
- Shareholders can take control of the business
- Shareholders will expect dividends (share of profits)
- Can be sold through the Stock Exchange - PLC's
- No interest is charged on these
- Shareholders can take control of the business
- Shareholders will expect dividends (share of profits)
Debt - Borrowing money is another form or external finance for a business. All types of business borrow money directly from banks.
Key term: OVERDRAFT - borrowing money from a bank by drawing more money than is actually in a current account. Interest is charged on the amount overdrawn. This a short-term solution.
Key term: LOAN - a longer-term period of borrowing which is paid back over a period of time with interest.
- A bank loan is given in return for repayments over next few years
- Will be charged interest (charge for borrowing so bank profits) Can be expensive
- Can be arranged quickly, larger businesses are seen as more secure
- May be asked for collateral (asset of business that bank takes if not repaid)
- Will be charged interest (charge for borrowing so bank profits) Can be expensive
- Can be arranged quickly, larger businesses are seen as more secure
- May be asked for collateral (asset of business that bank takes if not repaid)
Key term: BONDS - a long-term loan where typically interest is paid at regular intervals like a year and the loan is all repaid at the end of the life of the bond. Bonds can be traded on stock markets.
Trade credit - This is given by suppliers and is very important to some types of business. It is essentially giving extra time for a bill (invoice) to be paid, typically between 30-90 days. Sometimes, however, businesses pay their invoices late which can cause problems.
sources_of_finance_for_a_growing_business.doc | |
File Size: | 26 kb |
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sources_of_finance_worksheet.doc | |
File Size: | 5825 kb |
File Type: | doc |