9 Finance And Advice

04/09/23 H BM - SOURCES OF FINANCE 1

• RETAINED PROFIT – retained profits not distributed to

shareholders ploughed back into the business to generate more profit

• DEPRECIATION PROVISION– funds set aside for the replacement of worn-

out assets

• SALE OF ASSETS– forced to sell off assets to raise finance called

‘divestment’

SOURCES OF FINANCE -INTERNAL


SOURCES OF FINANCE

• EXTERNAL – finance raised from outside the

organisation – may be long-term (over 5 years), – medium-term (2-4 years) or – short-term (under 1 year)


LONG-TERM SOURCES• Increased Capital

– Sole trader invests more of personal savings

– New partner brings in new capital– Company issues more shares

• Mortgage• Debentures• ‘Sale and leaseback’• Venture capital


• BANK LOANS– used for acquiring machinery or

equipment– paid back in instalments over agreed

period– higher interest rate

MEDIUM-TERM SOURCES


• Short-term borrowing allows business to continue trading and avoid cash flow problems. Common methods of raising short-term finance– Overdraft– Debt factoring– Trade credit– Hire Purchase

SHORT-TERM SOURCES

Cash in Cash out


Government Assistance• Government initiatives to help businesses start-up,

survive and grow include:

– Local Enterprise Companies (LECs)– Training and Enterprise Councils (TECs)– Business Start Up Scheme– Reduced corporation tax for small businesses– Zero rating on exports for VAT– DTI offer advice, support and organise trade fairs

•


European Union Assistance

• European Regional Development Fund– regional initiatives eg, new roads

• European Social Fund– help for training and retraining


OTHER ASSISTANCE

• Prince’s Trust• Local Authorities - grants, small

business advisor, training schemes, low rent

• Trade Associations• Chambers of Commerce• Small business units - banks,

accountants, management consultants

9 Finance And Advice

Economy & Finance

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