this lesson we will be learning about... raising finance (financing growth) re-cap on sources of...

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This lesson we will be learning about... Raising Finance (Financing Growth) Re-cap on sources of finance – Unit 1

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This lesson we will be learning about...

Raising Finance(Financing Growth)

Re-cap on sources of finance – Unit 1

www.njhunter.co.uk

• Candidates need to be familiar with the main methods that a large business might use to raise funds.

• These include: retained profits, a new share issue, obtaining a loan or mortgage and selling unwanted assets.

• Candidates should be able to recognise the advantages and disadvantages of each method for a given situation.

NO IDEAI NEED HELP

NEVER HEARD OF IT

OKI CAN DO THIS WITH SUPPORT

SOME GUIDANCE NEEDEDNEARLY AT MY TARGET

GOT IT!VERY CONFIDENT

WILL HIT MY TARGET GRADE

EXCEED TARGET

www.njhunter.co.ukNO IDEAI NEED HELP

NEVER HEARD OF IT

OKI CAN DO THIS WITH SUPPORT

SOME GUIDANCE NEEDEDNEARLY AT MY TARGET

GOT IT!VERY CONFIDENT

WILL HIT MY TARGET GRADE

EXCEED TARGET

Success Criteria

< C •All definitions are clear•Exam context clear

C > •Should be able to include examples to support understanding

B > • Should be in a business context

A > QOWC and SPAG

www.njhunter.co.uk Starter

• SOURCES OF FINANCE

• What is a source of finance? • TASK• Identify as many sources of finance as possible

www.njhunter.co.ukDEFINITION: SOURCE OF FINANCE

A source of finance describes how a business raises cash for

investment

Types of finance

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QUESTIONWhat are sources of finance used

for?

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Start up a business, eg pay for premises, new equipment and advertising.

Running the business, eg having enough cash to pay staff wages and suppliers on time

Expand the business, eg having funds to pay for a new branch in a different city or country.

Q - Sources of finance are either internal or external – what do these terms mean?

www.njhunter.co.uk

http://www.youtube.com/watch?v=N5fyGFchLXYThe Simpsons Money jar

SOURCES OF FINANCE

Lets assume Monty Burns wants to Raise Money to expand the nuclear plant. How

can he raise money?EXPLAIN 3 ways Monty can obtain funds

both internally and externallyInternal Ways of Raising Money External Ways of Raising Money

3 suggestions 3 suggestions

www.njhunter.co.ukSOURCES OF FINANCE Watch the video.. Make notes

questions will follow

http://www.youtube.com/watch?v=5ll0mKg6-yI&feature=related

6 minutesEXAM BASED

www.njhunter.co.ukQUESTIONS

Answer and glue in books

(1) What are the three internal sources of finance?(2) identify five of the external sources that exist

(3) what are the benefits of retained profit?(4) what is meant by working capital?

(5) what factors determine the choice of external finance?(6) when would an overdraft be better than a loan or a loan

better than an overdraft?(7) when are long term sources used rather than short –term?

(8) what are the advantages of selling shares?(9) what are the disadvantages of selling shares?

Internal sources:Personal savings: Used by small businesses where the owner has some savings available to invest

Retained profit: This is profit already made that has been set aside to reinvest in the business.

Working capital: This is short-term money that is reserved for day-to-day expenses such as stationery, salaries, rent, bills and invoice payments.

Sales of assets: There may be surplus fixed assets, such as buildings and machinery that could be sold to generate money for new areas.

Make sure all notes are up-to-dateAnd Journals out ready for

homework

http://www.youtube.com/watch?v=B250DVf6cVk

2 ½ minutes

External sources:Shares: Limited companies could look to sell additional shares, to new or existing shareholders, in exchange for a return on their investment (i.e. A dividend)

Loans: A sum of money which is borrowed but has to be repaid with interest

Overdraft: Spending more money than you have in your bank account, to help a business flatten seasonal dips in cash-flow

Hire purchase: Hire purchase arrangements enable a firm to acquire an asset quickly without paying the full-price for it. Not owned until the final payment is made

Credit from suppliers: A company can take the maximum amount of time to pay and use the money in the interim period to finance other things.

Grants: Grants are often available from councils and other Government bodies for specific issues.

Venture capital: This source is most often used in the early stages of developing a new business. There may be a huge risk of failure but the potential returns may also be big e.g. Dragons Den

Factoring: This involves a company outsourcing its invoicing arrangements to an external organisation, who take off an administrative fee for their service

Homework – Complete the Sources of Finance Sheets.

By next week.