Unit 2 Assignment 4-P4 sources of finance BTEC Business Unit 2 Assignment 4-P4 sources of finance

Introduction There are two main ways businesses can access finance: from within the business (internal) and from outside the business (external)

What methods of finance could be used for a small business? Sources of Finance

Internal Sources of Finance Internal sources of finance can be from savings or profits. The owner of the business often has to use their personal savings to start the business, particularly if they are a sole trader. This is because banks may not be willing to take the risk and invest in them. Why are savings a good source of finance?

Internal Sources of Finance Once a business is operating it may be able to use the money that it makes as profit to reinvest back into the business. Investing money back into the business means that even greater potential profits to be invested into the business. The amount of profit that the business reinvests depends upon how much the owner wants to keep for themselves against how much they wish the business to expand.

External Sources of Finance There are a number of different external sources of finance that can be used by the business. Banks Building societies Hire purchase Leasing Venture capital Factoring/Debt Factoring Share Issue Friend or Family Government Grants

P4- Scenario Kate has decided to set up her own business selling cupcakes. Produce a table to show all of the methods of finance available to Kate.

Task 1 Source (description) Advantage Disadvantage Length (Short, medium, long term) Suitability of method Share Issue- this is.... You are in control of how many/% issued Loose part of you business can include loss of control Hire Purchase this means.... No large initial cost The resources isn’t owned until the last payment has been made