Class : Y11 Lesson Topic: Finance Scheme of Work: Sources of Finance

1. Class : Y11 • Lesson Topic: Finance • Scheme of Work: Sources of Finance

3. Lesson Objectives P&D Planning and Data ALL (KNOWLEDGE) Define and describe the types of sources of finance. MOST (ANALYSIS) Examine and Analysethe types of sources of finance. SOME (EVALUATION ) Evaluatethe pros and cons & Justify your views on the types of finance. Higher thinking Skills

4. Planning Tools P&D Planning and Data

5. Personalise your learning. . .

6. CONNECTIVES

7. COMPARING Equally… As with… Like… In the same way… Similarly… Even so… Likewise… CONTRASTING Although… Except… Moreover… If… However… Yet… Apart from… Unless… Despite… As long as… QUALIFYING Despite… Yet… As long as… Unless… Apart from… If… Moreover… Except… However… Although… CAUSE & EFFECT Consequently… Due to… As a result… Therefore.. Because of… Because… ADDING In addition… And… Too… Also… Additionally… As well as… Furthermore… CONNECTIVES for Analysis CONNECTIVES for Application CONNECTIVES for Evaluation CONCLUDING Firstly… After… Secondly… Before… Overall…I believe… Finally… I think … In conclusion… it depends… To conclude… short term… Meanwhile… Long term… EMPHASISING Most importantly… Significantly… Notably… Especially… Above all… In particular… Indeed… ILLUSTRATING For instance… Such as… In the case of… So… For example… As revealed by… As illustrated by…

8. Climb the Ladder ATD Apply to demonstrate

9. Why do new firms need finance?

10. Why do new firms need finance? • START UP CAPITAL • WORKING CAPITAL – CASH FLOW • EXPANSION

11. Internal v External

12. Internal sources of finance • Internal finance refers to the funds generated from within the business itself – for example: • Selling off fixed assets, such as machinery or premises. Such assets can be leased back from the new owner if they are still needed by the business. • Managing cash flow by reducing the length of time that customers have to pay invoices, while taking longer to pay suppliers. • Retained profit: the difference between the revenue generated from sales and costs incurred in making them, which can be invested back into the business.

13. Internal finance • Does not need to be repaid. • Unfortunately it may not always be possible. • Retained profit may be too low to meet the needs of new businesses or those experiencing a fall in sales. • Can affect cash flow.

14. External sources of finance • Funds generated from outside of a business. • Share capital: where funds are invested on a permanent basis into the business, in return for a claim on any profits made(dividends) • Loan capital: where funds are borrowed, to be repaid at some point in the short, medium or long term.

15. Share capital • Owners of small businesses may use funds from personal sources, e.g. their own savings or those of friends and family. • Limited companies can increase the level of ordinary share capital by selling additional shares to new or existing shareholders. • Venture capital providers invest significant sums by buying shares in small- or medium-sized companies with potential for rapid growth, but where the degree of risk involved is high enough to deter other investors. (a.k.a Dragons)

16. Share capital: Pros & Cons • A key advantage of share capital is that the capital invested does not have to be repaid during the business’ lifetime. • Shareholders are not automatically entitled to an annual dividend, for example, if the company does not make a profit after tax or if directors decide to reinvest profits. • However, raising finance by selling shares dilutes the control of the original owners. • Venture capitalists usually demand a substantial slice of a company’s shares and direct involvement in the way it is run, although they may also offer valuable business experience and expertise.

17. Venture Capital • Watch • https://www.youtube.com/watch?v=s8d5wxGEGc8

18. Loan capital • Most businesses obtain loan capital by borrowing from banks, in the form of a bank loan or overdraft. • Overdrafts are: • short term • allow customers to withdraw money up to an agreed limit Bank loans are: • Long term. • repaid in regular instalments or at the end of the loan period

19. Loan capital: Pros & Cons • A key advantage of using loan capital is that it does not result in a dilution of ownership or a loss of control. • However, loan capital must be repaid according to the terms agreed with the lender. Firms are often required to provide assets as security against a loan — Collateral. • Interest is also charged on loan capital, increasing costs and reducing profit levels. Interest charges on overdrafts are high if they are not repaid quickly.

21. Sources of finance: Evaluation • How much finance should be raised? • For how long will the finance be needed? • Are owners prepared to give up some control? • What risks are involved? • What costs are involved?

22. PLENARIES • What source of finance would you advise for; • A new Mr. Chippy fast food? • BP new oil well? • Apple new factory?

23. Lesson Objectives P&D Planning and Data ALL (KNOWLEDGE) Define and describe the types of sources of finance. MOST (ANALYSIS) Examine and Analysethe types of sources of finance. SOME (EVALUATION ) Evaluatethe pros and cons & Justify your views on the types of finance. Higher thinking Skills

24. Climb the Ladder ATD Apply to demonstrate

25. Pass the Parcel R Review the Learning Add as much information you can remember from today’s lesson When the horn blows – pass your sheet to the next table!

26. Neighbours R Review the Learning 2 things your neighbour has learnt today 1 question your neighbour wants to ask

27. Tweet Tweet R Review the Learning Summarise your learning today into a single tweet 140 characters Keep all of the information STOP

28. R Review the Learning

29. 5 minutes. . . GO STOP