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Sources of Finance for a Business Essay

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Sources of Finance for a Business

For a business to successfully run, it must have sources of finance.
These are methods of financing the running of the business, buying of
stock and paying of workers. Small businesses and large businesses
have different sources of finance. In this section, I will discuss the
different sources of finance used by small and large businesses, and
the advantages and disadvantages of each, starting with small
businesses.

Setting up a business costs money. For instance, setting up a bakery
involves buying or renting a shop and buying stocks of flour and so
on. One source of finance for a new business is equity or equity
capital. This is money which is put into the business by its owners.
The baker for instance, may have savings of £20,000 which are used to
buy a lease on a shop and start a sole proprietorship. They may also
go into a partnership with another person, with each putting in
£10,000 of their own savings. The advantage of using equity capital is
that, as it is the owner’s money, no extra cost or interest is charged
when using it. The problem with equity capital is that it is difficult
to gather in the first place. It is often difficult for small and
medium sized businesses to find individuals to provide equity. Or, if
the business is a sole proprietorship, the owner may be short of money
to provide equity. Retained profit is also the most important source
of finance for large businesses in the UK.

Once the business has been set up, it will want to make a profit. This
profit is owned by the owners of the business. Retained or
undistributed profit is where these profits are kept back for us...


... middle of paper ...


...ho set up their own businesses. They also provide
training and support. Other grants are available to businesses which
operate in areas of low income and high unemployment. Grants are good
for businesses because they are given for free, with no interest or
payment charges. However, they are fairly uncommon for everyday
businesses and are only given to businesses which need the boost in
funds.

For a business to succeed, it needs to find the right balance of
finance. It is important that it is well-placed to survive any
financial problems it might go through. In my business, it is vital to
carry out extensive research to ensure that I will have the right
amount of funds to carry out everyday running of the business. If this
does not happen and I do not find the correct sources of finance then
my business will fail.


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