Financing Growth Unit 3 Topic 3.3.4 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 sources To understand how to finance a business from Internal & external sources Growing a business To understand how to finance a business
from Internal & external sources 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 sources Why do firms want to grow?
To understand how to finance a business from Internal & external sources How can firms grow? 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 To understand how to finance a business from Internal & external sources Financing Growth Getting bigger requires investment. This can come from 2 main sources: To understand how to finance a business from Internal & external sources
Sources of finance Internal External Personal savings
Retained profit Working capital Sale of assets 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 sources 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 sources Internal Sources of finance To understand how to finance a business from Internal & external sources 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 sources 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 sources 3. Owners Capital or savings When the owner uses his or her own
savings to invest in the business. Usually a sole trader will part finance a new business with their own savings. To understand how to finance a business from Internal & external sources External Sources of finance To understand how to finance a business from Internal & external sources
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 Companies (PLCs) can sell shares on the stock market. To understand how to finance a business from Internal & external sources
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 sources 3. Loans
An amount of money is borrowed from the bank and then repaid with interest over 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 sources 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 sources 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 1001000. To understand how to finance a business from Internal & external sources 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 sources 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 sources To understand how to finance a business from Internal & external sources
Page 8 Mini book 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 Sams 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 sources Task 3: Finance matching activity A sum of money that has to be repaid with interest over a certain period. Money that does not have to be repaid. Often from the Government or EU
Money that a person has kept aside Renting of premises or equipment Money that is borrowed or invested for more than 1 year Profit that is kept and usually reinvested in the business The owners of a company Money that the business has to repay quickly like an overdraft Where a business is able to receive cash in advance for the invoices it has issu Factoring
Part ownership in a business Task 3: Finance matching activity A sum of money that has to be repaid with interest over a certain period. Money that does not have to be repaid. Often from the Government or EU Money that a person has kept aside Renting of premises or equipment Money that is borrowed or invested for more than 1 year Profit that is kept and usually reinvested in the business
The owners of a company Money that the business has to repay quickly like an overdraft Where a business is able to receive cash in advance for the invoices it has issu Factoring Part ownership in a business Solutions Profit that is kept and usually reinvested in the business
Renting of premises or equipment Part ownership in a business Money that the business has to repay quickly like an overdraft Money that is borrowed or invested for more than 1 year 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. Factoring Where a business is able to receive cash in advance for the invoices it has issued.
To understand how to finance a business The ownersfrom ofInternal a company & external sources Task Complete Worksheet 42 Financing growth To understand how to finance a business
from Internal & external sources Plenary: Finance Bingo 1. Draw a 9 box grid 2. Choose 9 keywords from orange box and write them in. Long term Short Term Overdraft Mortgage Leasing Share Retained profit Collateral
Trade Credit Shareholder Factoring Loan Dividend Savings Venture capitalist Share Capital To understand how to finance a business from Internal & external sources
Give us a clue! Identify the Long term Finance keywords Dividend Grants Venture Capitalists Mortgage Collateral
Share capital Shareholders To understand how to finance a business from Internal & external sources
