Sources of Finance for a Business Essay -- Papers

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... ...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.