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Financing Growth

Financing Growth. You need to know internal and external sources of finance. You also need to know the advantages and disadvantages of a range of different sources of finance You may have to select suitable sources of finance for a particular business problem. Internal finance.

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Financing Growth

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  1. Financing Growth • You need to know internal and external sources of finance. • You also need to know the advantages and disadvantages of a range of different sources of finance • You may have to select suitable sources of finance for a particular business problem

  2. Internal finance Comes from within the business itself, eg • Retained Profit • Sale of assets • Owners own funds

  3. External finance Comes from outside of the business • Share capital - LTD / PLC • Loans / mortgage and overdraft • Hire purchase • Sale and lease back • Debt factoring • Trade credit

  4. Share Issue (Share capital) Shareholders will expect to receive dividends – their share of the profit for the lifetime of the business. Also other shareholders may not be happy as profits have to be shared out with more people Retained Profit No additional cost but if spent no interest can be earned on it from bank. Sale of Assets No cost involved but not always available Issues to consider Trade Credit Useful to help cashflow as you get raw materials before you have to pay for them. No interest payable Overdraft Only suitable for short term to cover short falls in cashflow. ALL Consider Availability Cost Risk.

  5. REMEMBER….. • If asking for a suitable source of finance – you can not suggest share capital for a sole trader or partnership. • Also remember that only PLCs (public limited companies can sell on the stock exchange, • LTDs (private limited companies) can sell shares but only to friends and family

  6. Other sources of finance to remember See sources of finance sheet

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