Sources of Finance Time Periods for Finance Finance is generally considered to be either: Short-termMedium-termLong-term 1 to 3 years3 to 10 yearsOver.

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Presentation transcript:

Sources of Finance

Time Periods for Finance Finance is generally considered to be either: Short-termMedium-termLong-term 1 to 3 years3 to 10 yearsOver 10 years

Sources of Finance Sources of Finance can be either: Internal External

Internal Sources of Finance INTERNAL DivestmentPersonal Savings Reduction in current assets Sale of fixed assets Retained profits Factoring Sale/lease back

Internal Sources of Finance  Retained profits Retained profits are profits that the organisation has made in the past and has not given to owners in the form of profits or dividends.  Personal savings For a sole trader or for partners, personal savings may be an important source of finance which can be brought into the business as additional capital.

Continued…  Reduction in current assets. The current assets of a business are generally:  Its stocks of raw materials.  Partly finished goods.  Any money it is owed by its debtors.  Any money it has in the bank or in cash. The business should try to reduce its stock intake and the money it is owed by its debtors in order to raise more funds.

Continued…  Factoring A factoring firm will buy a firms debts and assume the risk on non-payment. The factor collects the debts directly from the businesses customers.  Sale of fixed assets A business could sell off machinery, vehicles, land or buildings that it no longer needs in order to raise finance.

Continued…  Sale and lease back A business sells of its assets to a finance company that then leases the asset back to the business. This means that the business can obtain cash when it needs it, but still have the use of the asset.  Divestment The business may choose to close down, sell off or get rid of business activities that are no longer felt to be appropriate or viable.

External Sources of Finance Short-term  Trade Credit  Overdraft  Loan Medium-term  Leasing  Hire purchase  Loan

Continued… Long-term  Loan  Share Capital  Mortgages  Venture Capital  Finance from the EU  IFI  Livewire  The princes youth trust