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Financing Growth Financing Growth

Financing Growth - PowerPoint Presentation

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Financing Growth - PPT Presentation

Chapter 15 Pages 8083 Aims for today To identify ways of financing a business from Internal amp external sources To be able to recommend and justify the most appropriate source of finance to fund the growth of different businesses ID: 447006

finance business amp sources business finance sources amp internal external understand money profit term grants company share repaid savings retained overdraft personal

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Slide1

Financing Growth

Chapter 15

Pages 80-83 Slide2

Aims for today

To identify ways of financing a business from Internal & external sources.

To be able to recommend and justify the most appropriate source of finance to fund the growth of different businesses.

To understand how to finance a business from Internal & external sourcesSlide3

To understand how to finance a business from Internal & external sourcesSlide4

Growing a business

To understand how to finance a business from Internal & external sourcesSlide5

Why might a firm want to grow larger?

Make a list or mind map of the reasons why a firm may want to grow larger.

To understand how to finance a business from Internal & external sourcesSlide6

Why do firms want to grow?

To understand how to finance a business from Internal & external sourcesSlide7

How can firms grow?

To understand how to finance a business from Internal & external sources

The type of integration that firms use will depend on their situation. There are 3 ways it can be done:Internal Expansion

– Expand by opening more outlets or employing more staff

Mergers

– Two businesses joining together to form a new or larger company

Takeovers

– Where one business buys at least 15% of another business to control it Slide8

Financing Growth

To understand how to finance a business from Internal & external sources

Getting bigger requires investment.

This can come from 2 main sources:Slide9

Sources of finance

Internal

Personal savingsRetained profitWorking capital

Sale of assets

External

Ordinary shares

Debentures

(secured loans) & other loans

Overdrafts

Hire purchase

Trade Credit

Grants

Venture capital

To understand how to finance a business from Internal & external sourcesSlide10

Task 1: In pairs

C grade: Summarise the Internal and external finance options that a business may have.

B grade: Explain the advantages and disadvantages of each method.

A grade:

Recommend and justify the most suitable method for a small bakery, a LTD and a franchise.

To understand how to finance a business from Internal & external sourcesSlide11

Internal Sources of finance

To understand how to finance a business from Internal & external sourcesSlide12

1. Retained profit

When a business makes a profit and keeps it rather than spending it, it is called: RETAINED PROFIT

The retained profit is available to use within the business, for developing the business or for a ‘rainy day’.

To understand how to finance a business from Internal & external sourcesSlide13

2. Selling assets

When a business sells off fixed and current assets

which it no longer needs in order to raise finance for new projects.

Fixed assets

-buildings

, land &

equipment

.

Current assets

- cash

, stock & money

owed

.

To understand how to finance a business from Internal & external sourcesSlide14

3. Owners Capital or savings

When the owner uses his or her own

savings to invest in the business. Usuallya sole trader will part finance a new business with their own savings.

To understand how to finance a business from Internal & external sourcesSlide15

External Sources of finance

To understand how to finance a business from Internal & external sourcesSlide16

1. Share capital

- The monetary value of a company -

Shareholders invest in a company (they have part ownership of it). An entrepreneur may use their personal savings (e.g. £5,000) as their share and they get others to invest as well.

Only Public Limited

C

ompanies (PLC’s) can sell shares on the stock market.

To understand how to finance a business from Internal & external sourcesSlide17

2. Venture Capitalists

A person or company who buys shares in a business that they hope will grow fast. In the long term, they will sell the shares at a profit and often reinvest in other companies.

To understand how to finance a business from Internal & external sourcesSlide18

3. Loans

An amount of money is borrowed from

the bank and then repaid with interestover a set period of time. The loan period

can range from 1 year to 10 years. Look

for the APR amount – the higher the

APR the more interest is paid.

To understand how to finance a business from Internal & external sourcesSlide19

4. Grants

Some businesses may get grants to help them start up (especially small businesses). Organisation such as the Princes Trust give business start up grants to young people up to the age of 30.

Grants are also available from the government and the European Union.

Grants

DO NOT

have to be repaid

To understand how to finance a business from Internal & external sourcesSlide20

5. Bank overdrafts

An overdraft facility is where you can use more money than you actually have in an account. An overdraft of £2,000 would let you go £2000 ‘in the red’

which may help a business in the short term.Personal overdrafts tend to be between £100-£1000.

To understand how to finance a business from Internal & external sourcesSlide21

6. Trade credit

TRADE CREDIT is when a supplier allows you a period of time

(such as 30 days) to pay for goods and services. However, your customers may also expect TRADE CREDIT so the advantages of this can be cancelled out!

To understand how to finance a business from Internal & external sourcesSlide22

7. Factoring

Is where a business is

able to receive cash immediately for the invoices it has issued from a

FACTOR

such as a bank

(instead of waiting the typical 30 days to be paid

)

A FACTOR is a financial service company like a bank and they charge a fee for this service.

To understand how to finance a business from Internal & external sourcesSlide23

Page 8 Mini book

To understand how to finance a business from Internal & external sourcesSlide24

Task 2: Role play

You are a small business advice officer in a bank.

Your client, Sam runs a successful mobile hairdressing business which he hopes to expand nationally within the next 3 years.

Explain the advantages & disadvantages of different types of finance for Sam’s business and make some recommendations to him.

Ext:

Explain issues with the availability of finance (pg82) and then select the most suitable source for his firm. What issues does he need to consider when using the chosen method of finance?

To understand how to finance a business from Internal & external sourcesSlide25

Task 3

: Finance matching activity

Retained profit

Shareholders

Personal savings

Share

Short term finance

Long term finance

Leasing

Loans

Grants

Profit that is kept and usually reinvested in the business

Part ownership in a business

Money that is borrowed or invested for more than 1 year

Money that the business has to repay quickly like an overdraft

Renting of premises or equipment

Money that a person has kept aside

Money that does not have to be repaid. Often from the Government or EU

A sum of money that has to be repaid with interest over a certain period.

The owners of a company

W

here

a business is able to receive

cash in advance

for the invoices it has

issued.

Factoring Slide26

Task 3

: Finance matching activity

Retained profit

Shareholders

Personal savings

Share

Short term finance

Long term finance

Leasing

Loans

Grants

Profit that is kept and usually reinvested in the business

Part ownership in a business

Money that is borrowed or invested for more than 1 year

Money that the business has to repay quickly like an overdraft

Renting of premises or equipment

Money that a person has kept aside

Money that does not have to be repaid. Often from the Government or EU

A sum of money that has to be repaid with interest over a certain period.

The owners of a company

W

here

a business is able to receive

cash in advance

for the invoices it has

issued.

Factoring Slide27

Solutions

Retained profit

Shareholders

Personal savings

Share

Short term finance

Long term finance

Leasing

Loans

Grants

Profit that is kept and usually reinvested in the business

Part ownership in a business

Money that is borrowed or invested for more than 1 year

Money that the business has to repay quickly like an overdraft

Renting of premises or equipment

Money that a person has kept aside

Money that does not have to be repaid. Often from the Government or EU

A sum of money that has to be repaid with interest over a certain period.

The owners of a company

To understand how to finance a business from Internal & external sources

W

here

a business is able to receive

cash in advance

for the invoices it has

issued.

Factoring Slide28

Task

Complete Worksheet 42 Financing growth

To understand how to finance a business from Internal & external sourcesSlide29

Plenary: Finance Bingo

Draw a 9 box grid

Choose 9

keywords from orange box and write them in.

Long term Short Term Overdraft Factoring

Loan

Mortgage Leasing Share Dividend Savings

Retained profit Collateral Venture capitalist

Trade Credit Shareholder Share Capital

To understand how to finance a business from Internal & external sourcesSlide30

Give us a clue!– Identify the

Long term Finance keywords

Shareholders

Share capital

Venture Capitalists

Grants

Dividend

Collateral

Mortgage

To understand how to finance a business from Internal & external sources