Summary
Complete Unit 2 Business Summary
- Institution
- PEARSON (PEARSON)
Pearson Edexcel IAL Business Unit 2 summary
[Show more]
Seller
Follow
Content preview
Sources of FinanceRaising finance – The process of raising capital in order to fund the business in its early stages.
Internal Finance
Owner’s capital of friends and family
+ no need to pay interest.
+ deadline can be discussed
+ large amount of control with low risk.
- Funds not significant .:. other methods of raising finance may be required
- Slow payments .:. damage personal relations of entrepreneur.
Retained profit
+ No interest payments.
+ Full control
- Slow process.
- Opportunity cost
Sales of assets
+ struggling with cash flow.
+ clear obsolete and redundant goods
- not receive full market value
- Tax consequences
- not sufficient alone to fund a business’ project
- Assets depreciate over time
External Finance
Bank loans:
+ relatively easy to obtain, as banks are willing to lend money to businesses with good
credit histories.
- expensive, as they typically have high interest rates
- may require collateral
Share capital:
selling shares in the company to investors .:. shareholders
+ good way to raise large amounts of money
+ share ownership with its investors
- shareholders may have a say in how the company is run .:. limit entrepreneur's control.
,Peer-to-peer funding .:. individuals lending money to each other directly.
+ for businesses that may not qualify for a bank loan
+ less restrictive.
- more expensive than bank loans
- higher interest rates.
Crowdfunding .:. large number of people, typically through an online platform.
+ for a new business or project
+ reach a wide audience
- risky .:. no guarantee that you will raise the right amount
Venture capital .:. providing money to early-stage companies in exchange for a share of
ownership
+ good way to raise large amounts of money
- very risky
- only invest in businesses with the potential to grow very quickly .:. may control over the
business
Business angels .:. individuals who invest their own money in early-stage companies
+ good source of funding and advice for businesses
- expect a significant return on their investment
Trade credit .:. suppliers extending credit to businesses.
+ buy now and pay later
+ manage cash flow,
- late payments damage your reputation
Leasing .:. renting assets, such as equipment or vehicles
+ acquire assets without having to pay for them upfront
- expensive, monthly payments.
- may not own the assets at the end of the lease term.
Government grants .:. financial rewards
+ good way to raise money for certain types of businesses or projects.
- very competitive
- strict eligibility requirements.
Overdrafts .:. loan that allows you to borrow money from your bank up to a certain limit.
+ good way to cover short-term cash flow problems.
- expensive, high interest rates.
- damage your credit score.
Limited Liability
, Unlimited liability .:. owner is personally liable for the debts of the business.
-> the business fails, the owner may have to sell their personal assets to pay off the debts.
Limited liability .:. owner is not personally liable for the debts of the business
-> the business fails, the owner's personal assets are protected.
Factors to consider when raising finance:
● Short-term or long-term finance? immediate costs or larger projects & investments.
● Financial status of the business? good credit history & able to afford the repayments.
● The amount of collateral available? property or equipment, in order to secure a loan.
● The purpose of finance? clear plan for how the money will be used.
● Legal status of the business? whether sole trader, partnership, limited company, or
public limited company.
Appropriate finance depending on liability:
Unlimited liability:
● Personal savings
● Mortgage
● Unsecured bank loans
● Peer to peer funding
● Overdraft
● Grants
Limited liability:
● Share capital
● Long term loans (debentures)
● Retained profit
● Venture capital
● Business angels
● Debenture
Is limited liability good for stakeholders?
Limited Liability: Private limited companies and Public limited companies.
Yes, limited liability is good for stakeholders...
● owner and business are different legal entities.
● shareholders losses are limited to how much they invested in the business.
● encourages shareholders to invest in companies on a larger scale
● in turn will leads to development of larger established businesses.
● Assuming: have adequate cash-flow as it improves the risk of non-receipt of debts to
stakeholders.
No limited liability is not good for stakeholders...
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller korotkovaviktoria02. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for £9.72. You're not tied to anything after your purchase.
Can Stuvia be trusted?
4.6 stars on Google & Trustpilot (+1000 reviews)
52510 documents were sold in the last 30 days
Founded in 2010, the go-to place to buy revision notes and other study material for 14 years now