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

NO IDEA I NEED HELP NEVER HEARD OF IT OK I CAN DO THIS WITH SUPPORT SOME GUIDANCE NEEDED NEARLY AT MY TARGET GOT IT! VERY CONFIDENT WILL HIT MY TARGET GRADE EXCEED TARGET 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.

All definitions are clear Exam context clear C > NO IDEA I NEED HELP NEVER HEARD OF IT OK I CAN DO THIS WITH SUPPORT SOME GUIDANCE NEEDED NEARLY 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

Starter SOURCES OF FINANCE What is a source of finance? TASK   TASK Identify as many sources of finance as possible

DEFINITION: SOURCE OF FINANCE A source of finance describes how a business raises cash for investment

Types of finance

QUESTION What are sources of finance used for?

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?

EXPLAIN 3 ways Monty can obtain funds both internally and externally http://www.youtube.com/watch?v=N5fyGFchLXY The 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 externally Internal Ways of Raising Money External Ways of Raising Money 3 suggestions

SOURCES OF FINANCE Watch the video.. Make notes questions will follow http://www.youtube.com/watch?v=5ll0mKg6-yI&feature=related 6 minutes EXAM BASED

QUESTIONS 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?

Make sure all notes are up-to-date And Journals out ready for homework 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.

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 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.