SGS Business 2.1.2 Finance for Growth

Internal sources of finance are?

• the business finding the money that it needs itself, for example through selling an asset or through using the profits that it has

• the business will need to borrow the money to expand somehow, this includes loans, shares and even floating on the stock market

External sources of finance are?

• the business finding the money that it needs itself, for example through selling an asset or through using the profits that it has

• the business will need to borrow the money to expand somehow, this includes loans, shares and even floating on the stock market

Internal sources of finance include

• Retained profits

• Loan Capital

• Selling assets

• Share Capital

External sources of finance include

• Retained profits

• Loan Capital

• Selling assets

• Share Capital

Private Limited Companies (Ltd) can raise Share Capital by selling shares to anyone?

• True

• False

Public Limited Companies (PLC's) can raise Share Capital by selling shares to anyone?

• True

• False

A stock market flotation is

• Part of the process of moving from being a Private Limited Company to a Public Limited Company and allows you to raise finance by selling shares in the company.

• Part of the process of moving from being a Public Limited Company to a Private Limited Company and allows you to raise finance by selling shares in the company.

• Selling shares to families and friends

• Never a good idea

Advantages of a stock market flotation are

• Guarantees a business success in the future

• An excellent source of finance for a rapidly growing business

• Flotations or going public raise the profile of a business making it easier to win big contracts in the future

• Provides a sudden and potential huge injection of money into the business

Disadvantages of a stock market flotation are

• Sudden injections of cash into the business can make managers overly ambitious and take too bigger risks.

• Flotations are always bad and result in businesses failing.

• Every time you sell shares you are loosing ownership of the business. If you eventually sell more than 50% of the business you can loose control all together.

• Shareholders demand ever high levels of profit and can encourage managers to focus on short term profit only.

This is the cash that is generated by the business when it operates successfully

• Retained profits

• Share capital

• Angel investor

• Owner savings