2.1.1 b Finance for Business Growth

Give one example of an EXTERNAL source of finance

(a)  

What a business might 'keep back' to spend on growth activities

(a)  

Name an asset a company might sell to raise money for growth activities

(a)  

Can a Ltd company advertise its shares?

• Yes

• No

Give one example of an INTERNAL source of finance

(a)  

A Public Limited Company (plc) has to have

• at least £80,000 of share capital to be allowed to float its shares on the stock market

• at least £500,000 of share capital to be allowed to float its shares on the stock market

• at least £50,000 of share capital to be allowed to float its shares on the stock market

• at least £100,000 of share capital to be allowed to float its shares on the stock market

Which of the following is a disadvantage of a company floating on the stock exchange?

• Provides a sudden, possibly huge, injection of share capital into the business.

• An excellent source of capital for a rapidly expanding business (safer than big bank borrowings).

• Suddenly selling so many shares means the founder’s holding may fall below 50 per cent, therefore losing control.

• ‘Going public’ raises the profile of the business (perhaps making to easier to win big contracts from big companies).

Check all the advantages of using retained profit as a source of finance to grow

• No interest payable

• If profits are used as a source of finance, the shareholders will receive less of the profit as dividends - they may object to this

• No risk of being taken over or declared bankrupt

• Never has to be paid back

A stock market flotation is where (a)   in a company are openly traded through an exchange open to the public

Click all the answers that are risks of business expansion

• When growing fast, there are lots of cash outgoings and perhaps not enough cash coming into the business. A source of finance is needed to fills this gap.

• If the wrong type of finance is used the business has higher risks.

• Shares do not have to be repaid. The owner has to sell them on.

• Borrowed money requires repayment