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04/09/23 H BM - SOURCES OF FINANCE 1
• RETAINED PROFIT – retained profits not distributed to
shareholders ploughed back into the business to generate more profit
• DEPRECIATION PROVISION– funds set aside for the replacement of worn-
out assets
• SALE OF ASSETS– forced to sell off assets to raise finance called
‘divestment’
SOURCES OF FINANCE -INTERNAL
04/09/23 H BM - SOURCES OF FINANCE 2
SOURCES OF FINANCE
• EXTERNAL – finance raised from outside the
organisation – may be long-term (over 5 years), – medium-term (2-4 years) or – short-term (under 1 year)
04/09/23 H BM - SOURCES OF FINANCE 3
LONG-TERM SOURCES• Increased Capital
– Sole trader invests more of personal savings
– New partner brings in new capital– Company issues more shares
• Mortgage• Debentures• ‘Sale and leaseback’• Venture capital
04/09/23 H BM - SOURCES OF FINANCE 4
• BANK LOANS– used for acquiring machinery or
equipment– paid back in instalments over agreed
period– higher interest rate
MEDIUM-TERM SOURCES
04/09/23 H BM - SOURCES OF FINANCE 5
• Short-term borrowing allows business to continue trading and avoid cash flow problems. Common methods of raising short-term finance– Overdraft– Debt factoring– Trade credit– Hire Purchase
SHORT-TERM SOURCES
Cash in Cash out
04/09/23 H BM - SOURCES OF FINANCE 6
Government Assistance• Government initiatives to help businesses start-up,
survive and grow include:
– Local Enterprise Companies (LECs)– Training and Enterprise Councils (TECs)– Business Start Up Scheme– Reduced corporation tax for small businesses– Zero rating on exports for VAT– DTI offer advice, support and organise trade fairs
•
04/09/23 H BM - SOURCES OF FINANCE 7
European Union Assistance
• European Regional Development Fund– regional initiatives eg, new roads
• European Social Fund– help for training and retraining
04/09/23 H BM - SOURCES OF FINANCE 8
OTHER ASSISTANCE
• Prince’s Trust• Local Authorities - grants, small
business advisor, training schemes, low rent
• Trade Associations• Chambers of Commerce• Small business units - banks,
accountants, management consultants