Essay
Unit 2 - P4 Business level 3
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This is p4 for unit 2 btec business level 3
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Gustavo Prado P4P4- Identify a range of internal and external sources of finance for a selected business.
Finance Explanation Benefits Drawbacks
method
Owner’s Funds The money given to the There’s no need to pay any It could be invested elsewhere, earning
company by the owner. interest on the money. a higher profit
The owner might not have enough
funds to meet the needs of the
company.
Retained The money kept in the There’s no need to pay any Could have been invested elsewhere,
Profits business by the owner which is interest on the money. earning a higher profit
also known as retained profit The business may not have enough
on the balance sheet. retained profit to meet its needs
Shareholders may become unhappy if
this means lower dividend payments
Selling Assets All the items and products The business is using money it The business has to have something
owned by the company are already has – so no need to worth selling for this to be an option
sold and only used for the take on loans or pay any The business may sell something they
company. interest or charges later need
Overdraft The bank allows the business Very quick to arrange Only suitable for smaller amounts and
to draw more money from A good short term solution to a has to be repaid within a short amount
their bank account than they cash flow problem of time
actually have in it Interest or charges are paid
Trade Credit Items are bought from This gives the company more Can only be used to buy certain goods
suppliers on a ‘buy now pay money that can be used in the Bills usually have to be settled within
later’ basis future. 30,60 or 90 days
Debt Factoring The company sells a debt it is Allows the business to get Time consuming to arrange
owed to a debt factoring money for debts that might The business receives less money than
company who pay the otherwise never have been it was originally owed – this may affect
business a smaller sum than paid profitability
they were owed Saves the business time
chasing customers etc for
money owed
Used to help obtain new Cost of the asset is spread May be more expensive than buying the
Leasing equipment eg cars over its life asset – the owner will want to profit
The business rents the item from the deal
No need to find a lump-sum of
from its owner The business does not own the asset so
money to purchase it
it does not appear on the balance sheet
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