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
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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