Using Budgets

Raising FinanceAS Business Studies

Aims & ObjectivesAim:Understand methods of raising finance.Objectives:Define overdrafts and venture capitalistExplain different internal and external methods of raising financeAnalyse internal and external methods of raising finance.

StarterWrite a type of legal structure/business on your post it note.Attach to your partners head, without them seeing.Your partner has to ask questions related to different legal structures/business to find out which one they are.You cannot ask questions using any of the legal structure key words.

Sole Trader

Window Cleaner

Raising FinanceOn your white boards, list as many different sources of finance for a start up business as you can.

Sources of Finance

Internal & External Sources of FinanceInternal Sources of Finance: Ones which come from the owners of the business.External Sources of Finance:Ones which come from outside the business.

Internal & External Sources of FinanceList as many internal and external sources as you can:

Problem With BorrowingInterest Rate.% of total borrowed money that is paid back by the entrepreneur.10,000 loan5% interest rate500 repaid in interest

Personal Sources of Finance Investment from personal sources.

Collective memory game.

Advantages of Personal Sources of FinanceDisadvantages of Personal Sources of FinanceTheres no cost to using this money in terms of an interest rateIts not strictly true theres no cost to an owner using his/her own money. Theres the opportunity cist in terms of the alternative uses to which the money could have been put.An entrepreneur putting his/her own money into a business start-up is a sign of confidence. If theyre willing to put their own money at risk maybe others will?Most entrepreneurs have limited finance at the start which limits what the business can purchase.The entrepreneur doesnt have to worry about the money being withdrawn, which could happen if the money was borrowed.New business start-ups are risky, so the entrepreneur could lose everything.Theres no risk of interference in decision making by a lender.Borrowing from friends or family can cause a strain on relationships if the business does not do well.The entrepreneur does not have to pay out anything from profits if he/she does not want to; its all available for reinvesting.Borrowing from friends or family rarely means interest has to be paidFriends and family may be more willing to lend than other lenders.

External Sources of Finance - Overdrafts A temporary agreement which allows the business to draw out more money than is in its bank account, up to an agreed amount.Bank charges fees for using, and interest.Banks can withdraw at any time.Brainstorm in groups, the advantages/disadvantages of using an overdraft.

OverdraftsAdvantagesIt is a flexible source of financeCan be used regularlyIt is quick and easy to arrangeGood for short term raising of financeDisadvantagesExpensive if used for long term raising of finance due to interest rates.Fees for going over the overdraft limit are highOverdraft can be removed at short noticeNon sustainable source of finance.

Venture CapitalistsA professional investor usually another business, interested in high risk, high growth businesses, who will invest an amount into a business in return for shares, and returns.

Venture Capitalistshttp://www.youtube.com/watch?v=0uX0DWjyGOE 18.23Decide in your groups on the advantages and disadvantages of using a venture capitalist to raise finance.

Venture CapitalistsAdvantagesLarge cash sums can be raised quickly.Gain expertise of the venture capitalist.Venture capitalist can bring new ideas and perspectives.Could lead to higher profits in the long run.DisadvantagesLoss of part of the ownership of the firm.Loss of full decision making.Loss of profits to venture capitalist.

PlenaryWhat is the difference between a loan and an overdraft?Define venture capitalist.Give two advantages of using a venture capitalist to raise finance.Give two disadvantages of using a venture capitalist to raise finance.