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Sources of Finance.

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Sources of Finance Private sector financing Firms need short-term finance to start up a business or to cover day-to-day running costs. This is repaid over a short period and provides a firm with working capital. Long-term capital is used to grow or expand and is paid back over a number of years. Sources of finance can be: * Internal * External Internal sources of finance are usually a cheaper way to raise working capital e.g. sales revenue, partners, owner's funds and retained profit. Obtaining finance externally is usually the last option as interest has to be paid increasing the cost e.g. ...read more.


3. Grants from central or local government can cost the firm nothing. 4. Firms often lease equipment or machinery to avoid a large outlay of cash. This is useful if a firm needs to upgrade within the medium term as technology advances. Economies Planned Economy In a pure planned economy the government decides what will be produced - this system operated in the former communist countries. Resources may not be used efficiently but all members of society will have food, housing and work. Market Economy In a pure market economy the use of factors of production is determined solely by supply and demand. ...read more.


The fixed cost curve is shown overleaf. VARIABLE COSTS These costs vary directly with the level of production, e.g., fuel, labour and raw materials. SEMI-VARIABLE COSTS Some costs are not so easy to classify. They are fixed for certain levels of production, however if output rises too much costs will also rise. TOTAL COSTS When fixed and variable costs are added together (plus any semi-variable costs) we arrive at the fixed costs figure. DIRECT COSTS These are costs that can be directly attributed to the production of a particular good or service, e.g., raw materials and piece rate wages. INDIRECT COSTS (OVERHEADS) These can't be directly linked to a good or service. They can be difficult to control and managers have to be aware of them, e.g., depreciation, management, administration and marketing. ...read more.

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