3.3 - Finance

Question 1

Finance

Answer 1

Is about the business owner planning how much money they will need to commence the business. Money will be needed to pay for:

• Operating costs
• Electricity
• Wages
• Time to Increase Sales
• Equipment
• Rent, Bond
• Inventory

Question 2

Self Fund

Answer 2

This means that the owner will provide the money themselves. The advantage is that there are no costs like interest to pay. The disadvantages are that the owner may not have enough fund and if the business was to fail, that would put their own money at risk.

Question 3

Family and Friends

Answer 3

This means that you seek the funds of people that you know. An advantage is that you may not be required to pay interest on the amount lent, the disadvantages are that they may not have enough funds and if the venture was to fail, then the family relationships could be taken.

Question 4

Private Investor (Loan or Part Ownership)

Answer 4

A private investor may gain partial ownership of your business which means that they will contribute to decision making or they may just loan the business money which will normally be at a higher rate than a bank.

The advantage is that the business can guarantee the funds needed. The disadvantage is that profit and decision making is shared, and loan interest costs are normally higher.

Question 5

Shares

Answer 5

This is when the business is set up as a company. This means that you can sell a share of that company. The advantage is that you are able to sell very small parts of the company to a number of individuals who can purchase different levels of ownership to raise the funds needed.
The disadvantage is that if the owner does not hold at least 51% of the shares, they will lose control of their business. Also to step up and run a company structure is expensive.