Sources of Finance D1 Sources of finance How many

Transcript:Sources of Finance D1 Sources of finance How many:
Sources of Finance D1 Sources of finance How many possible sources of finance can you list for a business? Try to think of both internal and external sources. Sources of Finance In this topic you will learn about Advantages, disadvantages, short term and long term: Internal : Retained profit Net current assets Sale of assets External: Owner’s capital Loans Crowd-funding Mortgages Venture capital Debt factoring Hire purchase Leasing Trade credit Grants Donations Peer to peer lending Invoice discounting Sources of finance Sources of finance are the options available to a business when seeking to raise funds to support future business actions For a start-up business this might be raising sufficient capital to establish the business For an established business this might be to fund growth or implement a new strategy e.g. relocation Sources of finance can be: Internal i.e. from within the business e.g. retained profit External i.e. from outside of the business e.g. loans Internal finance Internal sources of finance include: Retained profit Net current assets Sale of assets Retained profit Profit kept within a business from profit for the year to help finance future activities Retained profit can be used as a short term source e.g. to fund day to day activities or accumulated over time and used as a long term source Stagecoach reinvests £80m profit in 470 new buses. Net current assets Current assets are items of value owned by a business that will be used and change in value within a year Inventory Trade receivables Cash and cash equivalents Current liabilities are items owed by a business that are to be repaid within a year Trade payables Overdrafts Net current assets = current assets – current liabilities Sale of assets Sale of assets refers to the sale of a long term or fixed assets Fixed assets will stay in the business for more than a year e.g. machinery and vehicles These assets can be sold in order to get an immediate injection of cash in to a business and thereby provide finance The benefits are: No interest charges or repayments May be turning an obsolete asset into finance Immediate lump sum cash injection However: May be expensive in the long run if need to lease the asset back Loss of use of the asset and future value Is only a one off option Is selling assets an effective way of raising finance for Tesco? Internal