Business Finance: Needs And Sources: The Need For Business Finance (Copy)
Cheat Sheet: 5.1.1 The Need for Business Finance
Why Businesses Need Finance
| Reason | Explanation | Example |
|---|---|---|
| Start-up Capital | Needed to launch a business → buy equipment, rent premises, initial stock | Café needs ovens, tables, coffee machines |
| Expansion Capital | To grow business → open new branches, invest in technology, enter new markets | Retail chain opening stores abroad |
| Working Capital | Funds for day-to-day operations → pay wages, bills, buy raw materials | Bakery paying suppliers weekly |
| Emergency Finance | Unexpected problems like machinery breakdown or economic downturns | Factory repairs after breakdown |
| Research & Development | Finance for product innovation | Tech company developing new smartphone |
Written and Compiled By Sir Hunain Zia, World Record Holder With 154 Total A Grades, 7 Distinctions and 11 World Records For Educate A Change O Level And IGCSE Business Studies Full Scale Course
Short-Term vs. Long-Term Finance
| Type | Timeframe | Purpose | Example |
|---|---|---|---|
| Short-Term Finance | Less than 1 year | Cover temporary cash-flow problems, buy inventories, pay wages | Bank overdraft, trade credit |
| Long-Term Finance | More than 1 year | Fund major investments (buildings, machinery, expansion) | Bank loan, share issue |
Key Differences
| Factor | Short-Term | Long-Term |
|---|---|---|
| Duration | < 1 year | > 1 year |
| Cost | Usually lower, flexible | Higher, commitment required |
| Risk | More risky if overused | Tied to assets but more stable |
| Examples | Overdrafts, creditors, short loans | Debentures, share capital, mortgages |
Written and Compiled By Sir Hunain Zia, World Record Holder With 154 Total A Grades, 7 Distinctions and 11 World Records For Educate A Change O Level And IGCSE Business Studies Full Scale Course
Quick Revision Bullets
- Finance needed for start-up, expansion, working capital, emergencies, R&D
- Short-term finance (<1 yr): solves cash-flow issues, pays bills → overdrafts, trade credit
- Long-term finance (>1 yr): used for investments & expansion → loans, shares, debentures
- Businesses must match finance type with purpose to avoid liquidity problems
Written and Compiled By Sir Hunain Zia, World Record Holder With 154 Total A Grades, 7 Distinctions and 11 World Records For Educate A Change O Level And IGCSE Business Studies Full Scale Course