Why Does a Business Need Finance? What is the Difference between LONG and SHORT terms of Finance? What is the Difference between INTERNAL & EXTERNAL sources.

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Presentation transcript:

Why Does a Business Need Finance? What is the Difference between LONG and SHORT terms of Finance? What is the Difference between INTERNAL & EXTERNAL sources of Finance?

Learning Objectives Understand why a business needs funds (finance) Understand the difference between short and long term capital needs Understand the difference between internal sources of capital and external sources

Task Read This Link – make a note of the different reasons a business may need finance for.Link Extension – are all sources of finance available to all forms of businesses e.g. sole traders and PLC and LTD and partnerships?

Short-Term Finance or Capital Finance that is required for up to one year E.g. overdraft, trade credit

Long-Term Finance or Capital Finance required for more than one year E.g. share capital, bank loan

Task Think of any business costs that a business could have. Write on a post it and place in appropriate LONG TERM or SHORT TERM category

So What factors make it SHORT or LONG? The amount of finance required Time frame needed to payback or length of time finance required for Purpose – what the finance is needed for Economic climate?

INTERNAL Source of Finance Financed that is generated from within the business e.g. Retained Profit, Sale of Assets

EXTERNAL Finance that is generated from outside of the business e.g bank loan, overdraft, share issue

What Factors Determine whether they Choose Internal or External The amount of finance How quickly you require the finance Risks involved Impact upon business

Can you think of examples of each?

What have we learnt?