1.3.5 Obtaining finance Do you know your money? Match the correct colour and picture on the back to each denomination £5 Purple Sir John Houlbon 1st Governor of the Bank of England £10 Blue Sir Edward Elgar Composer £20 Red Elizabeth Fry Prison Reformer £50 Brown Charles Darwin Naturalist 1.3.5 Obtaining finance BUSS1.3.5 Obtaining finance

Need for finance In pairs complete the diagram below Rent premises Why do businesses need finance? To start and grow a business finance is needed. Why will it be difficult for a new entrepreneur to fund start-up without raising finance? BUSS1.3.5 Obtaining finance

Short-term sources of finance Overdrafts The ability to withdraw more money from a bank account than you actually have Interest rates are often very high Trade credit A supplier will normally allow other businesses a set amount of time e.g. 28 days before payment is required This can be a lifeline when a business has cash flow problems Interest payments have to be paid on overdrafts and bank loans. This means that the business will have to pay back a greater amount than they borrowed. BUSS1.3.5 Obtaining finance

Long-term sources of finance Bank loan A set amount of money borrowed from the bank to be paid back over a period of time Interest has to be paid on the amount borrowed Personal savings No interest to be paid and you retain ownership Retained Profit Can be reinvested to expand business Venture capital Venture capitalists (VCs) will invest large sums of money in a business in return for shares in the company Share capital Shares represent ownership of a company. Tend to be family shareholders in a private limited company Ordinary shares will pay a dividend (a share of the profits) and give voting rights (one vote per share) Always have a business plan! Bank management - Some Mothers Do 'Ave 'Em - BBC classic comedy BUSS1.3.5 Obtaining finance

Long-term sources of Finance Source of finance Advantages Disadvantages Bank Loan lump sum clear terms and conditions may also get support interest payments strict conditions needs to be agreed Personal savings Immediately available retain control high risk could lose everything Profit Allows for expansion Interest free Owners may require dividend May be small for a new business Venture capital Quick and easy access May come with expertise Lose share of business Loss of independence Shares Limited liability Restricted to family/friends Pay dividend BUSS1.3.5 Obtaining finance

Sources of finance In pairs Lucas wants to set up a small business selling hand made wooden games and puzzles over the internet. He has identified that he needs £50000 to set up his business. Place 5 possible sources of finance for Lucas in rank order of preference, justifying your ranking. Source of Finance Ranking Justification BUSS1.3.5 Obtaining finance

End 30 Second Timer How many banks can you name? Your time starts NOW! BUSS1.3.5 Obtaining finance

Sources of Finance Mandy used to work as a costume designer at her local theatre until she left work 3 years ago to bring up her daughter Natalie, now 4 years old. Mandy now works from her house in Slough where she provides, makes and sells hand made glove puppets. At the moment she sells at local craft fairs and through word of mouth. She now wants to expand her business to include an on line shop and also to provide puppet shows for children’s parties and puppet making workshops for slightly older children's parties. Question time Identify 2 reasons why Mandy may need to raise finance. Explain 1 advantage and 1 disadvantage of taking out a bank loan. Mandy is looking to get finance from a venture capitalist to help expand her business. Do you think this is a good idea? Justify your answer.

End 2 Minute Test What is meant by a source of finance? State 3 different types of finance offered by banks Name 2 other sources of finance What are interest rates? End BUSS1.3.5 Obtaining finance

MULTIPLE CHOICE 1. Which two of the following are the most appropriate sources of finance to use for buying a new store Select two answers. □ A Venture capital □ B Trade credit □ C Overdraft □ D Sales revenue □ E Bank loan 1. A, E BUSS1.3.5 Obtaining finance 10