sources of finance

2021 Words Mar 21st, 2014 9 Pages
Question:
IDENTIFY THE SOURCES OF FINANCE AVAILABLE TO A BUSINESS

Answer:
There are a number of ways of raising finance for a business. The type of finance chosen depends on the nature of the business. Large organisations are able to use a wider variety of finance sources than are smaller ones. Finance is not just needed when starting a new business, but you may be required to seek further finance even if you’re business is well established i-e further expansion, R&D, new product launch .
No matter what business you are in, you will always have to ensure your business is adequately financed; there are two major forms
1. Internal Finance
2. External Finance
Internal Finance
Internal finance is the finance that is raised
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These grants are often linked to incentives to firms to set up in areas that are in need of economic development.
Workforce restructuring Moving employees into new posts or laying off employees who have been working less than 2 years.

Question 2
ASSESS THE IMPLICATIONS OF THE DIFFRENT SOURCES

Answer
Implications of Sources of internal and external finance are as follows
Implications of Sources of Internal Finance
Personal savings:
This is most often an option for small businesses where the owner has some savings available to use as they wish.
Retained profit:
This is profit already made that has been set aside to reinvest in the business. It could be used for new machinery, marketing and advertising, vehicles or a new IT system.
Working capital:
This is short-term money that is reserved for day-to-day expenses such as stationery, salaries, rent, bills and invoice payments.
Sales of assets:
There may be surplus fixed assets, such as buildings and machinery that could be sold to generate money for new areas. Decisions to sell items that are still used should be made carefully as it could affect capacity to deliver existing products and services.

Implications of External Source of financing
Shares:
Limited companies could look to sell additional shares, to new or existing shareholders, in exchange for a return on their investment.
Loans:
There are debenture loans, with fixed or variable interest,

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