3.1.4

Sources of Business Finance

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Short-Term Methods

Sources of finance (e.g. banks, investors or suppliers) are ways that businesses can raise money to fund their operations and growth. Methods of finance are the ways that a source can offer finance. Some short-term methods of finance are:

Trade credit

Trade credit

  • Trade credit describes when firms pay suppliers at a later date. It involves buying something now and paying for it later.
Hire purchases

Hire purchases

  • This is when a business buys something and instead of paying for it upfront pays for it in instalments.
    • E.g. when PSG bought Kylian Mbappe from Monaco, they didn’t pay the whole amount at the time and instead completed the purchase in different stages.
    • E.g. If a company bought machinery worth £1,000, a hire purchase scheme may allow them to pay £100 a month for 10 months rather than pay £1,000 up front.
Overdraft

Overdraft

  • This is when a bank lets a business spend more money than the amount of cash that they have in their current account.

Long-Term Methods of Finance

Businesses can use the capital (money) to initially start up, to fund new investments for growth or to support a business if it is struggling. Some long-term methods of finance are:

Retained profit

Retained profit

  • This is profit that the business has effectively saved whilst it has been operating.
  • Retained profit is a cheap source of finance because a business does not have to pay any interest.
  • Retained profit is limited, so a business can only spend profits that have been saved. It may not be enough to fund large long-term projects.
Personal savings

Personal savings

  • This is personal money that is invested by the owner of a company.
    • It is most relevant for start-up companies, in which the entrepreneur has saved up to fund their business venture.
    • A downside is that it can be very risky for an entrepreneur to put a significant amount of their personal savings into a business.
Venture capital

Venture capital

  • In venture capital, experienced business people with access to large amounts of capital offer investment for a portion of the company in return.
  • A downside to this is that the entrepreneur may lose some control of the business decisions.
  • Some venture capitalists encourage the businesses that they invest in to take a lot of risks, which can be good or very bad for the business.
Share capital

Share capital

  • A firm can sell share capital (some of its shares) to other people or companies. They give away a percentage of the company in return for getting finance invested in the business.
    • This is usually what happens on Dragon’s Den on the BBC.
  • Public limited companies may do new share issues, creating shares and issuing them to investors through a stock market.
  • Private limited companies can sell share capital (shares) to family, friends or even a private equity company.
Bank loans or mortgages

Bank loans or mortgages

  • Bank loans and mortgages are very important for many businesses. A business borrows money from a bank and then pays interest on the money borrowed.
  • It is often harder for new businesses to get bank loans because banks see them as riskier.
Crowdfunding

Crowdfunding

  • Crowdfunding is often done over the internet. It involves encouraging investors (usually individuals) to put in small amounts of money into a specific business or venture.
  • The Oculus VR headset was initially crowdfunded by individuals who pledged (put in) $2.4m in 30 days.
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1

Exploring Business

1.1

Features of Business Organisations

1.1.1Sole Traders & Partnerships1.1.2Private & Public Limited Companies1.1.3Types of Liability & Not-For-Profits1.1.4Purposes of Businesses1.1.5Purposes of Businesses 21.1.6The Different Economic Sectors1.1.7Multinational Companies1.1.8Stakeholders1.1.9Influence of Stakeholders
1.2

Organisation of Businesses

1.2.1Organisational Structure1.2.2Types of Organisational Structures1.2.3Business Aims & Objectives1.2.4Business Aims1.2.5Business Objectives
1.3

Business Environment

1.3.1External Influences1.3.2Political & Legal Change1.3.3Economic Environment1.3.4Social & Technological Environment1.3.5Lifestyle & Technological Environment1.3.6Corporate Social Responsibility1.3.7The Competitive Environment1.3.8Innovation1.3.9Risk & Uncertainty1.3.10Porter's Five Forces1.3.11SWOT Analysis
2

Marketing Campaigns

2.1

Marketing

2.1.1Setting Marketing Objectives2.1.2Customer Needs2.1.3The Market2.1.4Competition & The Market2.1.5Consumer Behaviour2.1.6Market Research2.1.7Forms of Market Research2.1.8Market Segmentation2.1.9Cultural & Social Factors in Marketing2.1.10Promotional Decisions 32.1.11Pricing Strategies
2.2

Marketing Mix

2.2.1Marketing Mix2.2.2Product Life Cycle2.2.3Pricing Decisions & Price Skimming2.2.4Pricing Decisions & Price Penetration2.2.5Promotional Decisions2.2.6Promotional Decisions 22.2.7Promotional Decisions 32.2.8Market Mapping
3

Business Finance

3.1

Sources of Finance

3.1.1Internal Finance3.1.2External Finance3.1.3External Finance 23.1.4Sources of Business Finance
3.2

Financial Planning

3.2.1Revenue3.2.2Costs3.2.3Cash & Cash Flow3.2.4Cash & Cash Flow 23.2.5Break-Even Analysis3.2.6Profits
3.3

Financial Statements

3.3.1Balance Sheets3.3.2Income Statements3.3.3Liquidity
4

International Business

4.1

Globalisation

4.1.1Growing Economies4.1.2Specialisation & Trade
4.2

International Business

4.2.1Internationalisation4.2.2International Trade4.2.3MNCS4.2.4Conditions that Prompt Trade4.2.5Assessment of a Country
4.3

International Economic Environment

4.3.1Globalisation4.3.2Factors Contributing to Globalisation4.3.3Protectionism4.3.4The EU & the WTO4.3.5Trading Blocs
4.4

Factors Affecting International Business

4.4.1Global Competitiveness4.4.2Ethics of Global Business4.4.3Controlling MNCs4.4.4Cultural & Social Factors in Marketing
5

Principles of Management

5.1

Management & Leadership

5.1.1Managers5.1.2Management Theories5.1.3Managing Organisational Culture5.1.4Management Style
5.2

Theories of Motivation

5.2.1Motivating & Engaging Employees5.2.2Taylor's Theory5.2.3Mayo's Theory5.2.4Maslow's Theory5.2.5Herzberg's Theory
5.3

Managing Change

5.3.1Change5.3.2Key Factors in Change5.3.3Scenario Planning5.3.4Managing Change5.3.5Managing Strategic Implementation
6

Business Decision Making

6.1

Business Principles & Practices

6.1.1Influences in External Environments6.1.2Product Decisions6.1.3Competitive Environment6.1.4Corporate Strategy6.1.5Quantitative Sales Forecasting6.1.6Legislation
6.2

Quality Management

6.2.1Importance of Quality6.2.2Measuring Quality6.2.3Total Quality Management6.2.4Evaluating TQM
6.3

Human Resources

6.3.1Contracts6.3.2Recruitment6.3.3Training a Workforce
6.4

Documents & Business Decisions

6.4.1Sales Forecasts6.4.2Managing Strategic Implementation6.4.3Problems with Strategy

Practice questions on Sources of Business Finance

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  1. 1
    When PSG bought Kylian Mbappe from Monaco, they chose to complete the purchase in multiple stages. What is this an example of?Multiple choice
  2. 2
    What are some short-term methods of finance?Fill in the list
  3. 3
    Which of the following is not a short-term source of finance?Multiple choice
  4. 4
    Short term methods of finance:True / false
  5. 5
    When a business sells shares for a % of the business, which method of finance is this business using?Multiple choice
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External Finance 2

Revenue