Sources of Finance

7811 Words Dec 20th, 2011 32 Pages
Introduction - Sources of Finance
Introduction to the Sources of Finance resource.
Sources of Finance
Introduction
This resource is designed for use with Accounting courses at A ' level. This resource is relevant to the following: * AQA Module 5, Section 14.5: 'Types of Business Organisation, Sources of Finance ' * OCR Module 2505, Sections 5.3.2 and 5.6.2
For many businesses, the issue about where to get funds from for starting up, development and expansion can be crucial for the success of the business. It is important, therefore, that you understand the various sources of finance open to a business and are able to assess how appropriate these sources are in relation to the needs of the business. The latter point regarding
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A good and very public example here is Jamie Oliver, the television chef. Jamie financed his new restaurant, 'Fifteen ', using fifteen raw recruits to the catering trade and a large amount (£500,000) of his own cash.
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Sources of Finance
Retained Profit
This is often a very difficult idea to understand but, in reality, it is very simple. When a business makes a profit and it does not spend it, it keeps it - and accountants call profits that are kept and not spent retained profits. That 's all.
The retained profit is then available to use within the business to help with buying new machinery, vehicles, computers and so on or developing the business in any other way. Retained profits are also kept if the owners think that they may have difficulties in the future so they save them for a rainy day!
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Sources of Finance
Working Capital
This is the short-term capital or finance that a business keeps. Working capital is the money used to pay for the everyday trading activities carried out by the business - stationery needs, staff salaries and wages, rent, energy bills, payments for supplies and so on. Working capital is defined as:
Working capital = current assets - current liabilities
Where:
current assets are short term sources of finance such as stocks, debtors and cash - the

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