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Fro a business to successfully run, it must have sources of finance. These are methods of financing the running of the business, buying of stock and paying

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Introduction

Sources of Finance Fro a business to successfully run, it must have sources of finance. These are methods of financing the running of the business, buying of stock and paying of workers. Small businesses and large businesses have different sources of finance. In this section, I will discuss the different sources of finance used by small and large businesses, and the advantages and disadvantages of each, starting with small businesses. Setting up a business costs money. For instance, setting up a bakery involves buying or renting a shop and buying stocks of flour and so on. One source of finance for a new business is equity or equity capital. This is money which is put into the business by its owners. The baker for instance, may have savings of �20,000 which are used to buy a lease on a shop and start a sole proprietorship. They may also go into a partnership with another person, with each putting in �10,000 of their own savings. The advantage of using equity capital is that, as it is the owner's money, no extra cost or interest is charged when using it. The problem with equity capital is that it is difficult to gather in the first place. ...read more.

Middle

Larger-sized and more successful businesses have less difficulty raising large amounts of money because banks see their success as a sign of less risk. Small and medium sized businesses often have difficulty raising equity capital. This is one of the main reasons why some medium sized businesses become public limited companies. A plc is able to offer shares for sale to individual investors and corporate investors like assurance companies. When a business goes public, it often offers shares in the company for sale. The money raised by the sale of these shares can be used by the company for investment. This is known as share capital. The advantage of using share capital is that money is easily raised through the sale of shares. The drawback is that dividends must then be paid on those shares to the shareholders. Dividends are a share of a company's profits which are received by those who own shares in it (the shareholders). Large public limited companies can also borrow money through the City of London. They do this by issuing debentures. Debentures are usually long term loans, normally for between five and 25 years. ...read more.

Conclusion

However, the original owners will own a smaller share of the business. But they hope that this smaller share will be much more valuable after a while because of the growth of the company. Grants to businesses are given by a wide number of bodies. In the UK, these include the UK government, Princes Youth Business Trust and the European Union. Grants are offered by Learning and Skills Councils to unemployed people who set up their own businesses. They also provide training and support. Other grants are available to businesses which operate in areas of low income and high unemployment. Grants are good for businesses because they are given for free, with no interest or payment charges. However, they are fairly uncommon for everyday businesses and are only given to businesses which need the boost in funds. For a business to succeed, it needs to find the right balance of finance. It is important that it is well-placed to survive any financial problems it might go through. In my business, it is vital to carry out extensive research to ensure that I will have the right amount of funds to carry out everyday running of the business. If this does not happen and I do not find the correct sources of finance then my business will fail. ...read more.

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