4. finance for growing businesses

Finance for Growing Businesses

1. A sole trader may become a ___________________________ in order to obtain enough new finance to expand his business.

2. A partnership which is looking to expand may decide to become a ___________________ _____________ ______________________ when new owners join the business - called _____________________________________. In a Ltd company the shareholders are family and friends.

3. Only a ________________ ________________ ________________________ can raise capital by selling shares to the general public on the Stock Exchange. The major benefit of becoming either a Ltd or PLC is __________________ _____________________ i.e. shareholders only stand to lose the value of their investment should the business fail (and not their personal belongings/savings which could happen to a partnership/sole trader who gets in debt).

4. These shareholders who invest their money to buy shares in a company will receive financial rewards from the company (if it makes _____________________) in the form of _______________________.

5. If the company only makes a little profit, _____________________ shareholders may not receive any dividend at all.

This is because _________________________ shareholders have the right to receive any dividends first. However because of this greater ___________, ordinary shareholders can expect higher dividends if the company is very profitable

6. ________________________________ holders are individuals who loan money to a business.

The loan agreement states how much interest they are due from the business before any dividends to ordinary and preference shareholders are paid.

At an agreed date, these debentures are ____________________ in full.

Only _______________ _______________ _____________________ can raise extra capital from issuing debentures.

Sources of Finance

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Bank Overdraft

• Temporarily withdrawing more money than is in the business’ bank account

Trade Credit

• Buy now – pay at a later date

Factoring

• “Selling” the invoices you have issued to customers to a “factor” - saves waiting for payment

Grant

• Money which is gifted to a company which meets certain criteria e.g. located in area of deprivation

• Does not need to be paid back

Retained Profits

• Like company “savings” from profits of previous year(s)

• Does not need to be paid back and can be accessed quickly

Bank Loan

• Company borrows money from a bank and agrees to repay it over a period of months/years

• Advantage - instalments are spread over a period of time

• Disadvantage – banks may refuse to lend if no ‘security’ (collateral) is given

Leasing

• Similar to renting an asset e.g. van, machinery or premises

• Monthly payments made to the owner of asset

• Saves company having to pay the full purchase price outright

Hire Purchase

• Similar to leasing however monthly payments are higher AND the asset will eventually be owned by the business

Owner’s Savings

• Only suitable for a sole trader or partnership

Share Issue• Only suitable for a private limited

company (Ltd) to sell to selected family or friends OR for a public limited company (PLC) to sell to the general public on the Stock Market

• Another disadvantage is that it dilutes ownership and control

• Shareholders also expect dividends regularly

Debentures

• Only for PLCs• Debenture holders are NOT

shareholders therefore have no voting rights

Venture Capital

• Major advantage is that they are prepared to invest in more riskier businesses

• However dilutes ownership

1. A sole trader may become a ___________________________ in order to obtain enough new finance to expand his business.

partnership

2. A partnership which is looking to expand may decide to become a ___________________ _____________ ______________________ when new owners join the business - called _____________________________________. In a Ltd company the shareholders are family and friends.

private company

shareholders

limited

3. Only a ________________ ________________ ________________________ can raise capital by selling shares to the general public on the Stock Exchange. The major benefit of becoming either a Ltd or PLC is __________________ _____________________ i.e. shareholders only stand to lose the value of their investment should the business fail (and not their personal belongings/savings which could happen to a partnership/sole trader who gets in debt).

liabilitylimited

companylimited public

4. These shareholders who invest their money to buy shares in a company will receive financial rewards from the company (if it makes _____________________) in the form of _______________________.

a profitdividends

5. If the company only makes a little profit, _____________________ shareholders may not receive any dividend at all.

This is because _________________________ shareholders have the right to receive any dividends first. However because of this greater ___________, ordinary shareholders can expect higher dividends if the company is very profitable

ordinary

preference

risk

6. ________________________________ holders are individuals who loan money to a business.

The loan agreement states how much interest they are due from the business before any dividends to ordinary and preference shareholders are paid.

Debenture

At an agreed date, these debentures are ____________________ in full.

Only _______________ _______________ _____________________ can raise extra capital from issuing debentures.

companieslimitedpublic

repaid