3.1 Sources of Finance

Question 0

Owner’s funds

Answer 0

• No need to pay interest on the money

* Owner may not have enough fund to meet the needs of the business

Question 1

Reasons for finance

Answer 1

• Set up a business
• Need to finance day-to-day activities (working capital)
• Expansion
• Fall in sales
• Research into new products

Question 2

Retained profits

Answer 2

• The business may not have enough retainedprofit to meet its needs
• Shareholders may not be happy - lower divident payments

Question 3

Selling assets

Answer 3

• Sell asset → make money → finance business
• The business needsto have something worth selling
• thebusiness may sell something they needin the future

Question 5

Overdraft

Answer 5

• Negative bank account: the bank allows the business to draw money from their bank account than they actually they have in it
• Very quick to arrange
• For short-term, smaller amount
• Interests/charges needed to be paid

Question 6

Internal finance

Answer 6

• Retained profit
• Credit control (make customers pay sooner)
• Sell fixed assets

Question 7

Short term finance

Answer 7

• Personal savings