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Unit 2 - Working in business P4
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level 3 business extended diploma Unit 2 - Working in business P4
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Unit 2Task P4
In this assignment, I will be describing the different sources of both internal and external
finance used for financing a selected business. For this task I have used Papa’s chicken.
Credit: Credit is both external and internal factor. Business credit is a risk of external factor,
this is because it depends on what outsiders are willing to loan, and the rates or requirements
lenders want from the business. On the other hand, credit depends on the past decisions the
business has made, what lenders it approaches and its current financial position -- internal
factors.
Advantages:
Take advantage of sales - If you want something on sale but don’t have the cash to
get it, credit allows you to get it now.
Establishes a credit history - Buying something on credit with some creditors (even
when you can afford to pay cash for it) means you have a credit record.
Get something you can’t afford now. If you can’t afford to pay with cash for an
item, using credit allows you to get it now.
In relation to Papa’s chicken; one advantage of a financial internal source is that they
use friends and family in time of need. This is because if the company is running out of
stock and need money to re purchase stock again however do not have the funds to pay
the suppliers, instead they can ask their friends and family for the money. This works to
their advantage because they can be flexible when paying back. Some friends and family
won’t ask for interest. On the other hand if they were to borrow a loan from the bank
they will need to pay with interest and they will have a set date when they should be
paying them back. This puts pressure on the company to pay back the bank as soon as
possible.
Disadvantages:
Overuse of credit leads to a poor credit record. A poor credit record means you
will find it more difficult and more expensive to get future credit.
Reduces future buying power. Future income is tied up in credit payments. If you
use credit, part of everything you earn in the future will go toward what you bought in
the past.
Comparison shopping may be discouraged. If you have credit available, you may be
more likely to buy now rather than shopping around to find the best buy.
It can become a habit and encourages overspending. By simply having a credit
card available, a person is likely to spend more when shopping than when paying cash
for everything. Even if they know they cannot afford to pay back what they have bought
they will carry on using it.
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