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Finance for growing businesses
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Growing businesses need more money than start-ups. They can use money from inside the business or raise it from outside.
Internal sources
Retained profit: profit kept in the business rather than paid to owners. No interest, but it may not be enough and owners receive less.
Selling assets: selling things the business no longer needs, such as old machinery or property. Raises cash, but the asset is gone.
Selling assets: selling things the business no longer needs, such as old machinery or property. Raises cash, but the asset is gone.
External sources
Loan capital: borrowing from a bank, repaid with interest over a set period. The owners keep control, but interest must be paid.
Share capital: selling new shares. No repayment or interest, but ownership is diluted.
Stock market flotation: a company becomes a plc and sells shares on the stock exchange for the first time. Raises large sums but is costly.
Share capital: selling new shares. No repayment or interest, but ownership is diluted.
Stock market flotation: a company becomes a plc and sells shares on the stock exchange for the first time. Raises large sums but is costly.
Choosing a source
Think about the amount needed, the cost (interest or loss of control), the time to repay and the risk.
A large expansion might need a loan or shares; a small project might use retained profit.
A large expansion might need a loan or shares; a small project might use retained profit.
A plc wants £50 million to build a new factory. Suggest a suitable source.
- The amount is very large.
- A plc can sell new shares to the public.
Answer: Share capital (issuing new shares)
Internal: retained profit and selling assets. External: loan capital, share capital and stock market flotation. Choose by amount, cost, control and risk.
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