This is the third task of Unit 2 in which it consists of P4, P5 and M3. This task is about analysing and evaluating the benefits and drawbacks of different types of sources of finance that businesses can use. There is also a balance sheet that is required for P5 which is completed for a given busin...
Finance Explanation of Type of Description of Benefts Description of Drawbacks
method Finance
Owner’s This source of fnance is There is no need to worry If KFC becomes unsuccessful then
Funds the funds that the owner about paying money back the owner could lose their personal
External possesses personally in as it’s the owner’s funds, savings, meaning that KFC have
which the owner can therefore it can help KFC insufficient funds to deal with
choose whether to invest it maintain a low gearing unforeseen circumstances.
P4 and M3
into-their
Sources
business orof
not.Business
position. Finance for KFC
For example, personal
savings of the owner.
Retained Where there are leftover Possible to maintain a low The retained profts only have to be
Profts profts in the business gearing position because spent on KFC without the retained
Internal which can be re-invested the money is not profts being wasted. If the retained
for stock, business growth borrowed, meaning that profts were wasted on something
etc. KFC will not need to worry else, then KFC will end up
For example, the amount about repaying money struggling with dealing with bad
of revenue that a business back. situations.
has after 2015.
Selling Where businesses make Can make faster and a The old assets that KFC possesses
Assets money by selling their own more efficient way of will decrease in value, meaning
Internal assets such as stock, raising money as they’re that if they were to sell their assets
property or machinery. selling their unwanted then they’ll receive a lower price
assets and it can help KFC than the amount they originally
maintain a low gearing paid it for.
position.
Overdraft Where a bank allows a High fexibility in repaying There is a limited time for KFC to
External business to borrow more the money back which is repay the money back and KFC
money than they have in easier and it’s easy to have to repay the banks with an
its bank account. access, therefore KFC can interest rate on top of it.
maintain a low gearing
position.
Trade Credit Where a business obtains KFC would not need to Some other businesses may not
External products or services and worry about paying for want to trade with KFC due to their
then they have to pay for it stock as they’ll already past performances (whether it’s
at a later date. have all the materials that their profts or sales made which
For example, KFC orders a they need in order to start could’ve been poor, therefore
batch of food but have to up immediately, therefore leading to problems with
pay for it within 3s weeks’ KFC can improve their cash production.
time. fow.
Leasing When a business pays Easy access to capital, KFC will never own the items that
External monthly rent for meaning that KFC can start they’re paying monthly rent for.
machinery, equipment or up quickly. Also, KFC will have to pay money
property. over the lease period.
Bank Loans Loans given to Banks can provide KFC have to pay back the
External businesses by banks fnancial advice to the loan with an interest on
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