Presentation on theme: "Lcameron1 METHODS OF OBTAINING F I N A N C E. lcameron2 WHY DO FIRMS NEED MONEY? To survive and pay bills To grow in size WHERE CAN THE MONEY COME."— Presentation transcript:
lcameron2 WHY DO FIRMS NEED MONEY? To survive and pay bills To grow in size WHERE CAN THE MONEY COME FROM? Holding back PROFIT which the business makes in order to make more profit. This is known as an INTERNAL source of finance.
lcameron3 OTHER SOURCES OF RAISING MONEY Sources from OUTSIDE the business are known as EXTERNAL sources. External sources can be: Long term sources Short term sources
lcameron4 LONG TERM SOURCES OF FINANCE Selling more shares to people Putting more of your personal savings into the business Bank Loan/mortgage SHORT TERM SOURCES OF FINANCE Overdraft Trade Credit – your supplier gives you time to pay Hire Purchase – can be used to buy equipment and vehicles – small amount plus interest is paid each month until the item is paid for in full. I
lcameron5 HOW CAN THE GOVERNMENT HELP? Local Enterprise Councils The Loan Guarantee Scheme Reduced tax payments for smaller firms European Union – Regional development and Social Fund
lcameron6 1.Why do firms need money? 2.What is the most important source of money to a business? 3.Why should a business not pay out all its profits to shareholders? 4.Explain what is meant by an INTERNAL source of finance. 5.Explain what is meant by an EXTERNAL source of finance. 6.Give one advantage and one disadvantage of each of the following sources of finance. oIncreasing the number of shares to the public oArranging a bank loan with the bank manager oArranging an overdraft with the bank manager oTaking advantage of trade credit 7.In what ways can the government help local business? Read pages 23 - 25 of your course notes. Answer the following questions in your jotter.
lcameron7 OTHER METHODS OF RAISING FINANCE DEBT FACTORING Firms who require cash quickly might have trouble getting it from debtors. (People who owe YOU money.) A factoring business will offer immediate payment (take over the debt – about 80%) The company will charge a fee for this service.
lcameron8 LEASING or RENTING A method of using assets without paying the full cost of ownership. The customer makes payments to the owner of the asset for using it.
lcameron9 HIRE PURCHASE Goods bought and paid for over a period of time. The customer gets the use of the asset and makes payments to a Finance Company. When all payments are made, the asset belongs to the customer.
lcameron10 Venture Capital/Business Angels Venture capital companies help small businesses and entrepreneurs start up in return for a shareholding of the business. Venture capitalist offer assistance when banks and other lenders consider that there is too much risk in lending. The Dragons’ Den is an example or venture capitalists.
lcameron11 Finance Questions 2 Explain the main source of internal finance Describe 2 short term sources of finance. State an advantage and a disadvantage of each source given. Describe 2 long term sources of finance. State an advantage and a disadvantage of each source given. Describe “Debt Factoring”. Suggest one advantage and one disadvantage of debt factoring to an organisation. Explain the role of a Venture Capitalist or Business Angel. Suggest one advantage and one disadvantage of a business angel to an organisation. Design a poster outlining what you know about Sources of Finance.