Summary Unit 3: Finance and Accounts (SL&HL)

3.1 Sources of Finance

Role of fnance for a business
 Capital expenditure
 Revenue expenditure

What fiaice is ieeded fnor:
 Settiig up a a bup siiess requp ires startsup a caaitao ofn cash iijececoois fnro the owiers to
aup rchase esseioao caaitao equp ia eit aid, aossiboy, are ises.
 Need to fiaice their workiig caaitao: the daystosday fiaice ieeded to aay bioos aid
exaeises aid to bup iod up a stocks
 Bup siiess exaaisioi ieeds fiaice to iicrease the caaitao assets heod by the fr or to bup y
oup t the owiers ofn the other fr
 Fiiaice is ofei up sed to aay fnor research aid deveooa eit iito iew arodup cts or to iivest
iito iew arkeoig strategies
 Reveiup e exaeiditup re: the saeidiig oi the costs that aooows a bup siiess to ake a reveiup e.
Used to aay e aooyees, bup y raw ateriaos.
 Caaitao exaeiditup re: whei a bup siiess bup ys aid aiitaiis fxed assets, assets that they
exaect to oast ore thai oie year. Used oi bup iodiigs, achiiery etc.
 Caaitao exaeiditup re is oi fxed assets that youp ieed fnup ida eitaooy to rup i the bup siiess. Oice
youp have the , youp doi’t ieed the every day. Reveiup e exaeiditup re is exaeiditup re oi day to
day thiigs that geierate reveiup e (e.g. staf, raw ateriaos, eoectricity).
 Caa ex. saoit iito two categories: aiiteiaice vs iivest eit. Maiiteiaice: keeaiig it
rup iiiig. Iivest eit: deveooaiig the bup siiess e.g. bup yiig a iew fnactory.

The following internal sources of fnance
 Personal funds (for sole traders)

 First soup rce ofn fiaice
 Used esaeciaooy fnor staroig up a iew bup siiesses
 Ifn the sooe trader fiaices the bup siiess fnro his/her owi resoup rces, it adds to the bup siiess
risk fnor the eitreareieup r
 The fiaices ofn the fr are iiioaooy oi ited to the a oup it the owier has ii the fnor ofn
saviigs
 Baiks oike aersoiao fiaice as it shows co it eit aid that youp trup st ii the idea
 Cheaa soack ofn iiterest aay eitss aid easy

 Retained proft

 Proft oef over afer tax aid aayiig divideids to sharehooders is keat ii the bup siiess aid
beco es a soup rce ofn fiaice fnor fnup tup re bup siiess acovioes
 A iewoy fnor ed co aaiy or oie tradiig at a ooss wioo iot have access to this soup rce
 Bup siiesses that up se retaiied aroft are growiig bup siiesses. Oice they have growi, they wioo
aay oup t their arofts as divideids.
 Good becaup se: io aer issioi ieeded, easy aid cheaa as io iiterest is owed.
 Bad becaup se: sharehooders fneeo they are iot gettiig cash oup t ofn the bup siiess, so their
iivest eit is sooo at risk.

 Sale of assets