IB Business and Management ACCOUNTS AND FINANCE 3.1 Sources of Finance

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IB Business and Management ACCOUNTS AND FINANCE 3.1 Sources of Finance

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IB Business and Management .com IB Business and Management T he IB Diploma Business and Management course delivered IN STYLE , ONLINE . ©

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z Accounts & finance Topic 3

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z Sources of finance 3.1

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z All businesses need funds to finance business activity Initial set up costs What could these include??? Day-to-day running of the organization What could these include??? Expansion & growth Example of a need for funds here???

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z A wide variety of sources & options are available Choice depends on: Size of business Type of business Time frame Purpose of finance Cost!!!

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z The need for business finance purpose Capital expenditure The purchase of fixed assets Items of monetary value which have a long-term function & can be used repeatedly Land, buildings, machinery, etc Expensive & therefore come from medium-to long-term sources Can be used as collateral to leverage other finance (but tends to depreciate) Revenue expenditure Payments for daily running Wages, raw materials

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z Sources of finance internal Coming from within the business Know these concepts & definitions

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z Sources of finance external Coming from outside the business

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z Equity vs. debt

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z Shares stocks

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z bonds

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z IPO Initial public offering

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z dividends

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z Shares vs. bonds Stocks debentures

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z Debt factoring

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z Time frames Current financial year. Creditors & lenders to be repaid within 12 months Short-term More than 12 months and less than 5 years . Links with medium-term plans e.g. commercial loans & hire-purchase agreements medium-term Anytime after the next five years . More difficult for managers to envisage financial needs this far ahead e.g. commercial loans & hire-purchase agreements long-term

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z Sources of finance & business strategy Business failure is largely attributed to lack of financial planning Managers have to consider a number of inter-linked factors when deciding on alternative sources of finance Common exam question: evaluate different sources/options for finance

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