Edexcel AS/A Level Business Unit 2 - 2.1 Raising Finance
Containing: Sources of Finance (External and Internal), Limited and Unlimited Liability, Business Plan, Cash Flow
Internal Sources
INTERNAL SOURCES ADVANTAGES DISADVANTAGES Ac
RETAINED PROFIT A free source of Shareholders may
Topic 2.1 Raising Finance firm
finance that does not wish to receive it back Limited Liability & Unlimited Liability sho
incur interest. in the form of a LIMITED LIABILITY If a
dividend. A state where the owners of a business are not legally to e
SALES OF ASSETS Frees up value in The business loses the responsible for all of the business’ debts, so each owner only
unwanted assets to be benefit of the asset, risks losing the money they invested if the firm goes bust.
invested in other areas e.g. no longer owning Businesses with limited liability are owned by shareholders. A
of the business. a delivery vehicle. shareholder is an individual or institution that owns a
OWNER’S CAPITAL A free source of Owners could lose percentage of a company. As a limited company is a separate
(PERSONAL finance that does not their personal legal entity, the personal assets of shareholders are protected.
SAVINGS) incur interest. investment. Limited liability companies may also find it easier to raise large
amounts of capital through the sources available to them, e.g.
External Sources bank loans. The
EXTERNAL SOURCES ADVANTAGES DISADVANTAGES UNLIMITED LIABILITY
OVERDRAFTS Flexible way to fund Bank may ask for A state where the owners of a business are legally responsible
working capital – acts as repayment at any time for all of the business’ debts.
buffer for day-to-day and interest rates are Owners of unlimited businesses are exposed to the financial
expenses. high. obligations of the business. If they are unable to pay business
TRADE CREDIT Suitable for buying raw Delays in payment can debts to banks and suppliers, they could lose personal assets.
materials from suppliers damage relationships The same obligations apply to an unlawful acts committed by
as it gives the firm with suppliers.
the owners or employees. Unlimited liability companies
opportunity to generate
revenue. sometimes find it easier to raise finances from lenders as the
GRANTS Government schemes Generally given for social, lenders can seek to regain any borrowings directly from the
might be available for environmental, or owners of the firm.
some small firms. economic benefits.
LEASING Assets can be acquired In the long-term, a leased The Business Plan
without large capital asset is more expensive Businesses are more likely to succeed when the entrepreneurs have created
spending to acquire than purchasing it a detailed business plan. It should contain at least the following information
them. outright. FACTORS DETAILS
BANK LOANS Can be negotiated to Business has to pay Executive A one-page overview of the firm outlining its purpose
meet business interest and have to offer summary and the opportunity.
requirements. collateral to secure it Business idea An outline of the business idea and concept so that all
and stakeholders can understand the owner’s intentions.
B
VENTURE CAPITAL Can bring expertise. Owner may not want
input from elsewhere into opportunity
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