Edexcel A-level Business
Theme 2
Detailed mind maps on
the whole specification of
theme 2
, Long term ( repaid Short term (repaid
over 5-25 years) over 1-5 years)
Need for finance:
- Get started Interal sources of finance Owners own Bank overdraft
- Expanding/ growth capital/savings Trade credit
Examples: owners capital, retained profit, sales of
- Capital expenditure Share capital
assests, improved management of working capital Factoring
- Revenue expenditure Venture capitalists
Mangers need to keep an eye
Advanatges: cheap, no third party involvement, capital Loans
on working capital
available immediately Mortgages
When choosing a finance
business must consider: Disadvantages: can be limited, opportunity cost, risking Retained profit
amount of money required, your own money Leasing
level of risk involved, cost of Grants
External
finance sources of Finance:
• Share capital: the business changes from a ltd to a plc. Theme 2.1
Issues with share capital
-
Sources of Finance Factoring
Loss control A source of finance where business is able
- Shareholders can influence managers on certain decistions which may not be in the best to receive cash immedialtly for the invoices
intrest of the business it has issued, from a factor like a bank
- Many demand immediate rewards, therefore pressurise managers instead of waiting the typical 30 days to be
• Family and friends paid. The company sells a debt it is owed
• Crowdfunding: a way of getting a small number of investors to put money into the to a debt factoring company who pay the
business business a smaller sum than they were
• Venture capitalist: A person or company who buys shares in a business that they hope owed.
will grow fast. In the long term, they will sell the shares at a profit and often reinvest in
other companies. Financial management for an
• Bank loan: The loan period can range from 1 year to 10 years. established business
Look for the APR amount – the higher the APR the more interest is paid. Businesses will need to know how to
• Mortgage: long term bank loan provided by a bank on order to buy property respond if sales boom! Booms may sound
• Leasing : These are known as rental agreements. Businesses can rent equipment from great, but they can be difficult to handle.
other companies rather than buying them. Rapid expansion can require lots of cash to
• Government grants : finance extra staff, bigger premises or a
• Bank overdraft :The bank allows the business to draw more money from their bank bigger advertising budget.
account than they actually have in it. An overdraft of £2,000 would let you go £2000 ‘in
the red’ which may help a business in the short term. They have to pay interest.
• Trade credit : Trade credit is when a supplier allows you a period of time (such as 30
days) to pay for goods and services However, your customers may also expect trade credit
so the advantages of this can be cancelled out!
, Key words Advantages and disadvantages
Undercapitalised - A business not raising enough capital when starting up
Incorporated Business- A business model in which the business and the of limited companies
owner have separate legal identities
Advantages Disadvantages
Unincorporated Business -A business model in which there is no legal
difference between the owner and the business Limited liability protects the Greater admin costs
Unlimited liability – finances of the business are treated as inseparable shareholders
from the finances of the business owner
Easier to raise finance Public disclosure of company
Limited liability – legal debts runup by a business stays with the business
information
itself
Stable form of structure – Directors’ legal duties
These companies have access to more types of business will still exist even if
finance, this is both private and public limited the shareholder’s change
companie: limited liabily
Can pay less tax
o Share capital
o Bank finance
o Venture capital Advantages and disadvantage of a sole
o Leasing Theme 2.1 trader
o Trade credit Liability and Finance Advantages Disadvantages
Unlimited liability have no access to share capital,
so which would be the best source of finance for a Quick and easy to set up- Full personal liability –
sole trader or partnership! they business can transfer to unlimited liability
limited company once
o Owners’ capital launched
o Bank Finance o Business with limited liability usaly find it easier
Simple to run – owner has Harder to raise finance- often
o Leasing to get people to invest in the business as they will
complete control over have limited funds
o Trade credit only loose as much as they put in in a case of
decision-making
o Personal savings business failure
o Crowd funding o This means that sole traders and parternships Minimal paperwork The business is the owner –
o Mortagage (that have unlimited liability) will relay on internal the business will suffer if the
o Grants and external souces of finance that don’t involve owner is ill, loses interest etc
the sorce of finance becoming a part time owner
o Limited compinies can rasie lots of finance via Easy to close / shut down Pay more tax than a
company
share capital
Theme 2
Detailed mind maps on
the whole specification of
theme 2
, Long term ( repaid Short term (repaid
over 5-25 years) over 1-5 years)
Need for finance:
- Get started Interal sources of finance Owners own Bank overdraft
- Expanding/ growth capital/savings Trade credit
Examples: owners capital, retained profit, sales of
- Capital expenditure Share capital
assests, improved management of working capital Factoring
- Revenue expenditure Venture capitalists
Mangers need to keep an eye
Advanatges: cheap, no third party involvement, capital Loans
on working capital
available immediately Mortgages
When choosing a finance
business must consider: Disadvantages: can be limited, opportunity cost, risking Retained profit
amount of money required, your own money Leasing
level of risk involved, cost of Grants
External
finance sources of Finance:
• Share capital: the business changes from a ltd to a plc. Theme 2.1
Issues with share capital
-
Sources of Finance Factoring
Loss control A source of finance where business is able
- Shareholders can influence managers on certain decistions which may not be in the best to receive cash immedialtly for the invoices
intrest of the business it has issued, from a factor like a bank
- Many demand immediate rewards, therefore pressurise managers instead of waiting the typical 30 days to be
• Family and friends paid. The company sells a debt it is owed
• Crowdfunding: a way of getting a small number of investors to put money into the to a debt factoring company who pay the
business business a smaller sum than they were
• Venture capitalist: A person or company who buys shares in a business that they hope owed.
will grow fast. In the long term, they will sell the shares at a profit and often reinvest in
other companies. Financial management for an
• Bank loan: The loan period can range from 1 year to 10 years. established business
Look for the APR amount – the higher the APR the more interest is paid. Businesses will need to know how to
• Mortgage: long term bank loan provided by a bank on order to buy property respond if sales boom! Booms may sound
• Leasing : These are known as rental agreements. Businesses can rent equipment from great, but they can be difficult to handle.
other companies rather than buying them. Rapid expansion can require lots of cash to
• Government grants : finance extra staff, bigger premises or a
• Bank overdraft :The bank allows the business to draw more money from their bank bigger advertising budget.
account than they actually have in it. An overdraft of £2,000 would let you go £2000 ‘in
the red’ which may help a business in the short term. They have to pay interest.
• Trade credit : Trade credit is when a supplier allows you a period of time (such as 30
days) to pay for goods and services However, your customers may also expect trade credit
so the advantages of this can be cancelled out!
, Key words Advantages and disadvantages
Undercapitalised - A business not raising enough capital when starting up
Incorporated Business- A business model in which the business and the of limited companies
owner have separate legal identities
Advantages Disadvantages
Unincorporated Business -A business model in which there is no legal
difference between the owner and the business Limited liability protects the Greater admin costs
Unlimited liability – finances of the business are treated as inseparable shareholders
from the finances of the business owner
Easier to raise finance Public disclosure of company
Limited liability – legal debts runup by a business stays with the business
information
itself
Stable form of structure – Directors’ legal duties
These companies have access to more types of business will still exist even if
finance, this is both private and public limited the shareholder’s change
companie: limited liabily
Can pay less tax
o Share capital
o Bank finance
o Venture capital Advantages and disadvantage of a sole
o Leasing Theme 2.1 trader
o Trade credit Liability and Finance Advantages Disadvantages
Unlimited liability have no access to share capital,
so which would be the best source of finance for a Quick and easy to set up- Full personal liability –
sole trader or partnership! they business can transfer to unlimited liability
limited company once
o Owners’ capital launched
o Bank Finance o Business with limited liability usaly find it easier
Simple to run – owner has Harder to raise finance- often
o Leasing to get people to invest in the business as they will
complete control over have limited funds
o Trade credit only loose as much as they put in in a case of
decision-making
o Personal savings business failure
o Crowd funding o This means that sole traders and parternships Minimal paperwork The business is the owner –
o Mortagage (that have unlimited liability) will relay on internal the business will suffer if the
o Grants and external souces of finance that don’t involve owner is ill, loses interest etc
the sorce of finance becoming a part time owner
o Limited compinies can rasie lots of finance via Easy to close / shut down Pay more tax than a
company
share capital
