Starter task

What do you think are the most popular sources of finance for entrepreneurs starting up a business?

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Answers:

Personal savings - 60%

Business loan from a bank - 10%

Personal credit cards – 10%

Personal assets (other than savings) – 7%

Personal home equity loan – 5%]

Loan from family and friends – 2%

Business loan from the government – 0.7%

Government guaranteed bank loan – 0.7%

Grant – 0.4%

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GCSE Business Studies

Obtaining Finance

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Obtaining Finance

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Which sources of finance would be available to a business just setting up?

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Source of Finance

Which of these would need to be paid back in the short term (less than one year) and which would be longer term?

Sources of Finance advice

www.bbc.co.uk/schools/gcsebitesize/business/finance/sourcesoffinancevid.shtml

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Short Term Finance

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Theory

Notes

Sources of money for businesses that may

have to be repaid within a year

Short Term Finance

Bank Overdraft– borrowing money from a bank by drawing more money than in account (interest is charged)

Trade Credit– suppliers give a period of time before they have to be paid (typically 30 days)

Factoring– business receives cash immediately for the invoices is has issued from a factor, e.g. a bank, rather than waiting 30 days

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Theory

Notes

Long Term Finance

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Theory

Notes

Sources of money for businesses that are

borrowed or invested typically for

more than a year

Long Term Finance

Share Capital – monetary value of a company which belongs to shareholders

Venture Capitalist – professional investors who are willing to put money into a new company

Loans– borrowing a sum of money which has to be repaid with interest (1-5 years)

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Theory

Notes

Long Term Finance

Retained Profit – profit which is kept back in the business and is reinvested

Leasing – renting equipment or premises

Grants – sum of money from the government which doesn’t have to be repaid

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Theory

Notes

Against the Clock

Task

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Task

Read the following scenarios and complete the table on the most suitable source(s) of finance for each scenario. For many, there is more than one source of finance available so be prepared to justify your answer.

Scenario 1: New Property Mark Jennings is a plumber who has been working from home for the

last 2 years. He would like to buy a property with plenty storage and office space.

Scenario 2: New Computer Network Hinton Ltd specialises in producing designer t-shirts and has decided to

up grade the current computer network within her offices in Manchester. She estimates that the cost of a new computer network will be £30 000 and would like to upgrade this system every 3 years.

Scenario 3: Starting up a new Fruit and Vegetable shop Mike Randall has just been made redundant from a major high retailer.

He has received a redundancy payment of £50 000 and would like to set up an organic fruit and vegetable shop in Didsbury.

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Recall the different sources of finance available

Explain the different sources of finance available

Demonstrate understanding by using examples/cases

Analyse the suitability of the source of finance

Propose sources of finance for a business

Evaluate sources of finance dependant of business needs

Can you…..