Edexcel IAL Business Unit 2 (WBS12) – Complete Study Notes
Part A: Core Theory (General)
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2.3.2 Financial Planning
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1 Planning
a) Content of a business plan
A business plan sets out the business idea, goals, and how they will be achieved.
Section Content
Executive summary Overview of the business and its aims
Business description What the business does, legal structure, location
Market analysis Target market, customer profile, competitors, market size and trends
Marketing and sales Pricing strategy, promotion, distribution channels
Operations Premises, equipment, production methods, suppliers
Management and organisation Owners, directors, employees, their roles and experience
Financial forecasts Cash flow forecast, profit and loss forecast, break-even analysis
Funding required How much finance is needed and what it will be used for
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b) Relevance and uses of a business plan
Purpose Explanation
Raising finance Lenders and investors require a business plan to assess viability before
providing funds
Guiding decisions Provides a roadmap for the business, helping owners stay focused on
goals
Measuring performance Actual results can be compared against forecasts to identify
problems early
Identifying risks Forces owners to think about potential problems before they occur
Attracting partners Helps recruit key employees, suppliers, or business partners
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2 Internal Finance
a) Owner's capital: personal savings
,Money provided by the business owners from their own personal resources.
Advantage Disadvantage
Available immediately – no waiting for loan approval Limited to what the owner has saved
No interest costs Owner loses personal savings if business fails
No legal formalities May not be enough for larger investments
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b) Retained profit
Profit after tax (corporation tax) that is reinvested into the business rather than distributed to
owners/shareholders as dividends.
Advantage Disadvantage
No interest costs – cheapest source of finance Only available if the business makes a profit
Flexible – can be accumulated in a bank account Shareholders may expect dividends and
be unhappy
Does not dilute ownership
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c) Sale of assets
Selling unwanted items the business owns to raise cash.
Advantage Disadvantage
Quick cash without borrowing Not suitable for start-ups (no assets to sell)
Asset is no longer needed anyway May take time to find a buyer
No interest costs May harm future operations if asset is still needed
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3 External Finance
a) Sources of finance
Source Description Suitability
Family and friends Loans or investments from people known to the owner Start-ups, small
amounts, when formal finance is hard to obtain
Banks Loans, mortgages, overdrafts from financial institutions Established businesses with
trading history; various purposes
Peer-to-peer funding Individuals lend money to businesses via online platforms, avoiding
banks Small businesses, start-ups that can't get bank loans
Business angels Wealthy individuals who invest their own money in return for equity
High-growth start-ups; also provide expertise and contacts
Crowd funding Large number of individuals (the crowd) invest small amounts online Creative
projects, start-ups; good for raising awareness
, Other businesses Finance provided by another business (e.g., supplier credit, investment)
B2B relationships, strategic partnerships
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b) Methods of finance
Method Description Suitability
Loans Amount borrowed repaid in regular instalments with interest Long-term investment
(machinery, premises); established businesses
Share capital Selling shares in the company to raise funds Limited companies (Ltd or PLC);
large amounts of permanent capital
Venture capital Investment from a company/individual that pools funds from wealthy
investors High-growth, high-risk start-ups; often in technology or innovation
Overdrafts Allows spending more than in the account, up to an agreed limit Short-term cash
flow needs; flexible but can be recalled by bank
Leasing Acquiring use of assets (property, machinery) for regular payments When business
cannot afford to buy assets outright; preserves cash
Trade credit Buying goods/services now but paying later (e.g., 30 days) Managing working
capital; common in B2B transactions
Grants Money from government or other bodies that does not need repayment Specific
purposes (R&D, regional development, environmental projects)
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4 Forms of Business
a) Sole trader, partnership, private limited company (Ltd)
Feature Sole Trader Partnership Private Limited Company (Ltd)
Owners One owner 2 or more partners Shareholders (often family/friends)
Liability Unlimited Usually unlimited (can have limited partners) Limited
Legal status Not separate from owner Not separate Separate legal entity
Raising finance Difficult (personal savings) Easier (more owners) Easier (share capital)
Profit sharing Owner keeps all Shared according to deed of partnership Dividends to
shareholders
Control Full control Shared Directors run; shareholders elect directors
Registration Simple; no legal formalities Simple; may have Deed of Partnership Must register
with Registrar of Companies; Memorandum and Articles of Association
Deed of Partnership: A legal document stating partners' rights in case of dispute, covering
capital contributions, profit/loss sharing, and control. Without a deed, the Partnership Act
applies (profits shared equally).
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b) Franchising, social enterprise, lifestyle businesses, online businesses
Part A: Core Theory (General)
---
2.3.2 Financial Planning
---
1 Planning
a) Content of a business plan
A business plan sets out the business idea, goals, and how they will be achieved.
Section Content
Executive summary Overview of the business and its aims
Business description What the business does, legal structure, location
Market analysis Target market, customer profile, competitors, market size and trends
Marketing and sales Pricing strategy, promotion, distribution channels
Operations Premises, equipment, production methods, suppliers
Management and organisation Owners, directors, employees, their roles and experience
Financial forecasts Cash flow forecast, profit and loss forecast, break-even analysis
Funding required How much finance is needed and what it will be used for
---
b) Relevance and uses of a business plan
Purpose Explanation
Raising finance Lenders and investors require a business plan to assess viability before
providing funds
Guiding decisions Provides a roadmap for the business, helping owners stay focused on
goals
Measuring performance Actual results can be compared against forecasts to identify
problems early
Identifying risks Forces owners to think about potential problems before they occur
Attracting partners Helps recruit key employees, suppliers, or business partners
---
2 Internal Finance
a) Owner's capital: personal savings
,Money provided by the business owners from their own personal resources.
Advantage Disadvantage
Available immediately – no waiting for loan approval Limited to what the owner has saved
No interest costs Owner loses personal savings if business fails
No legal formalities May not be enough for larger investments
---
b) Retained profit
Profit after tax (corporation tax) that is reinvested into the business rather than distributed to
owners/shareholders as dividends.
Advantage Disadvantage
No interest costs – cheapest source of finance Only available if the business makes a profit
Flexible – can be accumulated in a bank account Shareholders may expect dividends and
be unhappy
Does not dilute ownership
---
c) Sale of assets
Selling unwanted items the business owns to raise cash.
Advantage Disadvantage
Quick cash without borrowing Not suitable for start-ups (no assets to sell)
Asset is no longer needed anyway May take time to find a buyer
No interest costs May harm future operations if asset is still needed
---
3 External Finance
a) Sources of finance
Source Description Suitability
Family and friends Loans or investments from people known to the owner Start-ups, small
amounts, when formal finance is hard to obtain
Banks Loans, mortgages, overdrafts from financial institutions Established businesses with
trading history; various purposes
Peer-to-peer funding Individuals lend money to businesses via online platforms, avoiding
banks Small businesses, start-ups that can't get bank loans
Business angels Wealthy individuals who invest their own money in return for equity
High-growth start-ups; also provide expertise and contacts
Crowd funding Large number of individuals (the crowd) invest small amounts online Creative
projects, start-ups; good for raising awareness
, Other businesses Finance provided by another business (e.g., supplier credit, investment)
B2B relationships, strategic partnerships
---
b) Methods of finance
Method Description Suitability
Loans Amount borrowed repaid in regular instalments with interest Long-term investment
(machinery, premises); established businesses
Share capital Selling shares in the company to raise funds Limited companies (Ltd or PLC);
large amounts of permanent capital
Venture capital Investment from a company/individual that pools funds from wealthy
investors High-growth, high-risk start-ups; often in technology or innovation
Overdrafts Allows spending more than in the account, up to an agreed limit Short-term cash
flow needs; flexible but can be recalled by bank
Leasing Acquiring use of assets (property, machinery) for regular payments When business
cannot afford to buy assets outright; preserves cash
Trade credit Buying goods/services now but paying later (e.g., 30 days) Managing working
capital; common in B2B transactions
Grants Money from government or other bodies that does not need repayment Specific
purposes (R&D, regional development, environmental projects)
---
4 Forms of Business
a) Sole trader, partnership, private limited company (Ltd)
Feature Sole Trader Partnership Private Limited Company (Ltd)
Owners One owner 2 or more partners Shareholders (often family/friends)
Liability Unlimited Usually unlimited (can have limited partners) Limited
Legal status Not separate from owner Not separate Separate legal entity
Raising finance Difficult (personal savings) Easier (more owners) Easier (share capital)
Profit sharing Owner keeps all Shared according to deed of partnership Dividends to
shareholders
Control Full control Shared Directors run; shareholders elect directors
Registration Simple; no legal formalities Simple; may have Deed of Partnership Must register
with Registrar of Companies; Memorandum and Articles of Association
Deed of Partnership: A legal document stating partners' rights in case of dispute, covering
capital contributions, profit/loss sharing, and control. Without a deed, the Partnership Act
applies (profits shared equally).
---
b) Franchising, social enterprise, lifestyle businesses, online businesses
