Business: Theme 2

• A business plan is an outline that describes the nature, objectives, strategies and financial forecasts of a new or existing business.
• Business plans are used by businesses to secure finance from banks and investors
• Market research involves gathering information about customers' needs and preferences
• The purpose of a business plan is to set out how the business will achieve its goals
• Primary market research involves collecting data directly from consumers through surveys, questionnaires and interviews
• Secondary market research involves using existing sources such as websites, newspapers and trade journals
• Sources of finance


  Providers of finance
• Methods of finance


  The way in which a provider gives finance
• Sources of finance


  • Internal
  • External
• Businesses need finance to buy fixed assets and pay day-to-day costs
• Short-term finance is usually paid within 1 year, long-term finance is 3 years or more
• Factors to consider when choosing a source of finance


  • Amount of money required
  • Level of risk involved
  • Cost of the finance
• Owner's capital


  Money the owner(s) invest in the business, often from their personal savings
• Owner's capital


  • Easy to access
  • Doesn't need paying back
  • Limited by personal wealth of owners
• Selling assets


  Businesses can sell some of their assets to generate capital
• Selling assets


  • Only suitable for businesses with spare assets
  • Doesn't require paying interest
  • Business no longer owns the asset
  • Can take a long time to sell
• Retained profit


  Profit that is retained and built up over the years for later investment
• Retained profit


  • Doesn't require paying interest
  • Shareholders may object as they want dividends
  • May cause business to miss investment opportunities
• External sources of finance


  • Banks
  • Peer-to-peer lenders
  • Business angels
  • Crowd funding
  • Other businesses
• Peer-to-peer lending


  Individuals lend money to other individuals or businesses online
• Peer-to-peer lending


  • Lower interest rates than bank loans
  • Attractive if bank loan rejected
• Business angels


  Wealthy individuals who invest money into new or innovative businesses
• Business angels


  • Provide business advice and guidance
  • Difficult and time-consuming to find
  • Business has to give up a share of ownership
• Crowd funding


  Raising money from a large number of people, usually via the internet
• Crowd funding


  • Suitable for start-ups and established businesses
  • Raises awareness of product/brand
  • Business idea is made public so risk of it being copied
• Overdraft


  A bank allows a business to have a negative amount in its bank account
• Overdraft


  • Easy to arrange and flexible
  • High interest rates
• Leasing


  Paying to use another firm's asset
• Leasing


  • Doesn't require large upfront payment
  • Asset is often up-to-date
  • Can be more costly in the long-run than buying
• Grant


  A fixed sum of money given to a business, often by a government
• Grant


  • Doesn't need to be repaid
  • Application process is long and time-consuming
  • Money not received until end of project
• Trade credit


  A business buys a good or service and doesn't have to pay straight away
• Trade credit


  • Helps with cash flow
  • Discounts may be missed for paying upfront
  • Failure to pay on time can damage credit rating
• Loan


  A fixed amount of money is borrowed and paid back over a fixed period with interest
• Loan


  • Good for long-term financing of assets
  • Not suitable for day-to-day costs
  • Security may be needed
• Share capital


  Money raised by selling shares in a limited company
• Share capital


  • Money doesn't need to be repaid
  • New shareholders bring expertise
  • Original owners lose full control
• Venture capital


  Money provided for high risk, high growth potential businesses
• Venture capital


  • Business has to give up a share of ownership
  • Investors want input into business decisions
  • Money doesn't need to be repaid
• Venture capital


  Firm has to give up a share of their business and sometimes the investors want a big say in how the business is run. However, the money doesn't have to be repaid and the business may benefit from the expert advice that the investors can provide.