INTRODUCTION

Businesses have to consider their finances for so may purposes, ranging from survival in bad times to bolstering the next success in good ones. Financing your business can affect your ability to employ staff, purchase goods, acquire licenses, expand and develop. Finance is crucial to making the good stuff happen.

SOURCES OF FINANCE

INTERNAL SOURCES (FINANCE FROM INSIDE BU-SINESS) EXTERNAL SOUCES(FINANCE F- ROM OUTSIDE)

SOURCES OF FINANCE
ADVANTAGES OF INTERNAL FINANCE Easy and quick way to solve short term financial problems. Saves a business borrowing from a lender and to pay back interest.

INTERNAL FINANCE
RETAINED PROFITS: profits that owners have reinvested into the business after paying costs and tax. OWNERS FUNDS: money put in by the owners themselves. SALE OF ASSETS: a one-off way to raise money, generally used during financial struggles

EXTERNAL FINANCE
External sources of finance come from outside business and are more difficult to arrange than internal sources. Short-term finance: used for daily expenses. sourced from anTRADECREDIT,

SHORT TERM FINANCE

FACTORING . OVERDRAFT , repaid in a year

EXTERNAL SOURCES
Medium-term finance: used to pay for repairs and small improvements. Sources include: Medium term loans, hire purchase, leasing. Usually paid back over 5-7 years.

EXTERNAL SOURCES OF FINANCE

Long-term finance: used to pay for major expenditure, such as buying new premises. Sources include: MORTGAGE issuing shares, debentures, mortgages, venture capital paid back over many years.

ISSUE OF SECURITIES
PUBLIC ISSUE RIGHTS ISSUE PRIVATE PLACEMENT EURO-ISSUES

COST OF DEBENTURE
COST OF DEBT IS AS RETURN TO DEBT HOLDER. INTEREST IS A TAX DEDUCTIBLE EXPENSE. COMPANY CAN BORROW FUNDS FROM FINANCIAL INSTITUTION OR PUBLIC EITHER IN THE FORMS OF PUBLIC DEPOSITS OR DEBENTURES FOR A SPECIFIED PERIOD OF TIME AT CERTAIN RATE OF INTEREST

Costs the company to raise finance

COST OF DEBENTURE

kd = int + 1/n(F-BO) (F + Bo) Where N= no of years (maturity period) F= face value Bo= issue price Int=coupon interest

COST OF TERM LOAN

SIMPLY EQUAL TO THE INTEREST RATE MULTIPLIED BY (1-TAX RATE) Kt= I(1-t) Where I= interest rate T= tax rate

 COST OF EQUITY CAPITAL

Pe= D1 + g P0 CAPITAL ASSET PRICING MODEL ke=Rf + B (Rm + Rf) where B is the systematic risk component Rm is the return from the market Rf is the risk free rate of return Ke is the cost of capital

 COST OF PREFERENCE CAPITAL

KP=D+f-P n f+p 2 Where KP= cost of preference capital

D= preference dividend per share payable annually F= redemption price P= net amount realized per share N= maturity period

FINANCIAL MARKET
CAPITAL MARKET primary and secondary markets Money Market Treasury Bills Certificate of Deposit Euro Dollars Banker's Acceptance Commercial Paper Repos

HOW TO CHOOSE RIGHT SOURCE OF FINANCE FOR BUSINESS

COST

CONTROLLING

RISK

FLEXIBILITY

FROM ICE CREAM VAN TO DRAGONS DEN

FROM ICE CREAM VAN TO DRAGONS DEN

He bought an ice cream van for 450 He built this into Duncan's Super Ices, with a fleet of vans and a business turnover of 300,000 per year During the 1980s, he spotted that the government was helping unemployed people by paying their rents. He used surplus profits from the ice cream business to buy and convert houses into bedsits for rent. This guaranteed revenue from the government. .

FROM ICE CREAM VAN TO DRAGONS DEN

To finance setting up a chain of care homes, he sold his ice cream business and almost every other asset he owned. The homes eventually sold for 46 million. Duncan's business empire now includes the Bannatyne Health Club chain, Bannatyne Hotels, Bar Bannatyne and more recently a chain of spas. His empire is now valued at over 310 million , making him one of the wealthiest people in the UK.

FROM ICE CREAM VAN TO DRAGONS DEN

CONCLUSION
Finance is important to business as without it businesses would not be able to start up or survive. To start a business such as grants or loans used to buy essential items such as vehicles, premises and other equipment. Needed for a business to continue running as money is needed to face running costs such as electricity and rent. needed in expanding a business.

CONCLUSION
If you plan the financial side of a business accurately you will be able to track the progress of your business in terms of profit and cash surpluses. Accurate financial documents will allow you to keep track of your cash flow and monitor how much of your loans you have paid off. You can measure your success through accurate financial planning. Financial documents will allow you to see when you have enough retained profits to expand and improve your business

BIBLIOGRAPHY
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