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Sources Of Finance

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Introduction

Organisations in the private sector are split into four types of ownership structures, these are a sole trader, partnership, private limited company and a public limited company these businesses essentially need finance for many different reasons, these may be for long term or short term uses. The main types of financial backup that is needed for businesses are for starting a business up, expansion and development or maybe the business has just run out of money that is needed for it to be successful. There are many sources of financial help an organisation can turn to for funding and can be different depending upon the business ownership and structure as some are more appropriate for the need of the business than others. These are categorised as the providing of the financial fund can be obtained within the business and out side the business. Internal sources-These are the main types of financial help that most businesses can get access to freely. Limited companies use these more than other business ownerships. * Personal savings * Sale of assets * Retained profit * Working Capital External sources Ownership capital * Shareholders Non ownership capital, financial sources that are not shareholders. * Loans e.g. debentures * Overdraft * Hire purchase * Grants * Venture capital * Leasing A sole trader is the simplest and easiest type of business to set up as there are no legal requirements to comply with; all there is to do is start trading. The down side of being a sole trader is that they have unlimited liability, which means that if the business goes bankrupt the sole traders personal assets may be taken to pay off the unpaid debit if the business has run out of money. But the advantages are that all of the profit that is made from the business is the sole traders to keep as they are their own boss. ...read more.

Middle

Depending on the amount of the business retained profit this source of finance is the most appropriate to use in this situation as it is being put back into the business for which it is meant for and there are no constraints of using it as it is the business own personal money. This financial source can be saved by the business until the right amount has being raised to expand it and can be accessed any time and allow the partners to have full control over the new enterprise as they are investing there own businesses profit, unlike if venture capital was being used, because this can be very time consuming in finding an investor, which will then want some share in the business and some control of it. Another situation that could be looked at is if one of the banker's private limited company customers intended to convert to a public limited company then more financial help will be needed to develop this as this is one of the most largest types of business structure in the private sector. This finance could be obtained from using government grants to help set up theses types of businesses. Grants are a form of funding awarded by private foundations or other government departments/agencies to successful applicants. They have competitive procedure and strict guidelines so only some selected business can apply for them. The main advantages are: * Grants do not have to be paid back it is free money given to successfully selected businesses that are eligible for one. It is given to help a business financially to pay for things to make it a success. This is an advantage because it dos not have to be paid back after it has being used for its purpose it was given. * Any business in an approved area is entitled to a grant theses grants can be very high amounts to help with premises and security to the equipment needed etc. ...read more.

Conclusion

How ever retained profits is kept and saved to be used within the business to help develop it or help when it is experiencing financial difficulties. This is a good source of finance for a partnership enterprise to use as it also means it is not putting the business in debit as it has also got unlimited liability like a sole trader. The retained profit could be saved until there is enough money to expand the business which would allow the partners to keep and have full control over the new development. The last scenario is where a private limited company converts into a public limited company; the most appropriate source of additional finance to help the business expand is to hire the assets needed to develop the business in to this other form of enterprise because a grant is to unreliable. Even if the company applied for a grant they would have to wait a long time to be told if they are entitled to one or not which would mean if they cannot have a grant they have wasted time in which it could of being used to find a more reliable type of financial. Hire purchase allows the business immediate access to the equipment and machinery that they need to become a public limited company as this will need more assets to produce more goods as this type of business is a larger enterprise than a private limited company so will need to make more profit to cover the businesses running and fixed costs to survive. How ever the private limited company could use hire purchase to make more income by hiring more equipment to make more products to raise more capital to gradually expand into a PLC company. This seems like the most appropriate source of financial help to use as a grant has too many regulations and requirements needed to be able to be obtained. ?? ?? ?? ?? Michaela Louise Burnett Stuart Lund 1 ...read more.

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