1. iGCSE Business Studies
5.1.1 The need for business finance

2. Learning Outcomes The main reasons why businesses need finance
Understand the difference between short-term and long-term finance needs

3. Capital Versus Revenue Expenditure
Capital Expenditure
Revenue Expenditure
Capital expenditure occurs when a business gets a long term advantage due to that expenditure.
Often the purchase of an asset
Expenditure which is not for increasing the value of fixed assets, but for running the business on a day to day basis.

4. 4 reasons finance is needed
Start-up
Cash flow
Renewal
Expansion

5. Reasons for Finance 1: Start-up
Finance will be needed when the business first starts
Start-up costs can involve capital and revenue expenditure
Task
A new restaurant is opening
What would they need to spend money on in the first month of operation?
Write a list

6. Fixtures and fittings £10,000
Capital or Revenue Expenditure?
Utility Bills £300
Fixtures and fittings £10,000
Premises
£300,000
Computer
£300
Wage Costs
£600
Stock
£1,000
Decorators
£1,500
Kitchen Equipment
£15,000
Van
£12,000

7. Reasons for Finance 2: Cash Flow
Cash flow refers to the money that a firm needs in order to pay it’s running costs
Cash flow means financing revenue expenditure
Task
Write a list of the revenue expenditures that a firm is likely to have over the period of a month

8. Reasons for Finance 3: Renewal
Assets that the business owns will need replacing.
Renewal will involve Capital Expenditure
Questions
What are the main reasons why assets will need to be replaced?
What types of assets is a business likely to have to replace?

9. Reasons for Finance 4: Expansion
If the business wants to increase in size then it will have to invest in new assets/businesses
Expansion involves Capital Expenditure

10. Long term vs Short term needs
How long do businesses need money for?
Long term vs Short term needs

11. Short-term finance needs
Business needs finance for a short period of time
Tends to be relatively small amount
Tends to be for revenue expenditure

12. Long-term finance needs
Business needs finance for a big project or major purchase
Large amounts of finance are needed
Generally for capital expenditure

13. Task – 10 mins Open the document ‘The need for finance’
Answer the questions

14. Learning Outcomes The main reasons why businesses need finance
Understand the difference between short-term and long-term finance needs