3.1 Business Finance - Sources

Question 1

Why is finance needed?

Answer 1

1. Satisfy Short term needs (Expenses)
2. Satisfy Long Term Needs (Debts)
3. Start-up/expand

Question 2

What are the two kinds of financial resources?

Answer 2

1. Internal Sources
2. External Sources

Question 3

What are the Internal Sources of Finance?

Answer 3

1. Selling assets
2. Retained Profits
3. Personal Savings

Question 4

What are the external sources of finance?

Answer 4

Short-Term:

1. Overdrafts
2. Trade Credit
3. Debt Factoring

Long-Term:

1. Loans
2. Leasing/Hire Purchase
3. Debentures
4. Share Issues

Question 5

What are the advantages and disadvantages of using retained profits?

Answer 5

Advantages:

1. Cheaper, no interest repaid
2. faster

Disadvantages:

1. Reduces dividends, upsets shareholders
2. Opportunity Cost
3. Business may not have enough retained profits

Question 6

What are the advantages and disadvantages of selling assets?

Answer 6

Advantages:

1. Employing redundant assets
2. no direct cost to business

Disadvantages:

1. Leasbacking can increase expenses with further increasing rates.
2. Takes Time
3. New businesses don’t have surplus

Question 7

What are the advantages and disadvantages of using personal savings?

Answer 7

Advantages:

1. Cheaper
2. Immediate

Disadvanatges:

1. Owners don’t have enough
2. not guaranteed return of money
3. Increases risk to owner

Question 8

what are the advantages and disadvantages of using overdrafts?

Answer 8

Advantages:

1. Can draw more than your account
2. Flexible

Disadvantages:

1. Variable Interest Rates
2. Repaid at short notice

Question 9

What are the advantages and disadvantages of using trade credit?

Answer 9

Advantages:

1. Get more time

Disadvantages:

1. Discount relinquished
2. supplier may refuse further feliverues
3. supplier may demand payments if done too often

Question 10

What are the advantages and disadvantages of using venture capitals?

Answer 10

Advantages:

1. Gets investment and help from professionals
2. Can be monetary, technical etc

Question 11

What are the advantages and disadvantages of issuing shares?

Answer 11

Advantages:

1. Faster
2. No repaid

Disadvantages:

1. May dilute share value

Question 12

What are the advantages and disadvantages of crowdfunding?

Answer 12

Advantages:

1. Free profit
2. Doesn’t need to be repaid in money
3. Takes time
4. May not appeal to other people

Disadvantages:

1. Takes Time
2. People may be reluctant