2.1.1

Question 1

What are sources of finance?

Answer 1

The options available to a business when seeking to raise funds to support future business actions

Question 2

What are the four main sources of finance?

Answer 2

• Owners capital
• Retained profit
• Sale of assets
• Improved management of working capital?

Question 3

What is owners capital?

Answer 3

When an entrepreneur invests their own money in a business

Question 4

What is retained profit?

Answer 4

Profit kept within a business from profit for the year to help finance future activities

Question 5

What is sales of assets?

Answer 5

The sale of long term or fixed assets

Question 6

What is improved management of working capital?

Answer 6

When existing capital in a business is made to stretch further

Question 7

What are the advantages of Owners Capital?

Answer 7

• Do not have to repay?
• No interest charges
• Risking own savings can be motivational
• Owner maintains control
• Do not have to go through any lengthy application procedures

Question 8

What are the 2 main disadvantages of Owners Capital?

Answer 8

• May only be limited amounts available

- Threat to personal finances and family

Question 9

What are the advantages of Retained Profit?

Answer 9

• Avoids interest repayments

- Does not dilute the business ownership

Question 10

What are the disadvantages of Retained Profit?

Answer 10

• Only an option if sufficient retained profit exists within the business
• May cause shareholder dissatisfaction if this is at the expense of dividend payments
• Reduces the security blanket of keeping retained profits for unforeseen situations