P4 – describe sources of internal and external finance for a selected business
Caledonia is a small takeaway outlet shop that sells chicken burgers, chips and drinks. It is located in Harlesden, near the estates. This is so that they can get a lot of customers coming in and out of there shop.
There are two ways that Caledonia can get financial resources:
* From within the business (internal sources)
* From outside the business (external sources)
Caledonia can get financial resources internally from the business owner’s saving or from the profit that Caledonia makes.
The sole trader of Caledonia will have to use his own savings to start the ...view middle of the document...
Until the last payment is made on the agreement, the goods are not owned by the business, and if payments are not made the finance company can take them back. | * Items can be handed back at any time (if no longer required) and payment automatically stops – Flexible method | * Interest often charged highly * Until the end of the term, the item doesn’t belong with the business |
Leasing | Leasing means that a business can make use of resources and pay to use them every month. The business does not own the goods at the end of the lease. Leasing is often used by companies for vehicles. | * Cost of asset it spread over its lifetime * No large sums of money are used to purchase it | * Sometimes more expensive than buying asset (owner prefers a profit) * Business won’t appear on balance sheet because they don’t own the asset |
Venture capitalists | These are people who invest in new and up-and-coming risky ventures, usually in return for a share of the ownership | * When banks refuse to lend money, you can raise money from venture capitalists | * Risk for the venture capitalists * They may want control over how the business operates |
Factoring | Debt factoring means that the business sells its debts to another company and receives some of the money immediately. The debt factoring company collects the debts and takes a percentage cut for this service. | * Debts can be paid by the help of another business with their money * Business doesn’t need to chase people for money owned | * It can be time consuming to arrange * Business receives less money than originally allowed (this affects probability) |
Share issues | Issuing shares is a good way for many companies to raise finance. Small businesses will issue shares...