BTEC National in Business
Unit 2 Investigating Business Resources
P4 Describe sources of internal and
external finance for a selected business.
This must be applied to a specific business, so
choose one to base your work on now!
Produce a PowerPoint presentation
for a the owners of the new business
1. Introduction: state the aim of the presentation and
describe the business you will be advising about their
options (your chosen business scenario)
2. Overview: Explain the difference between internal
and external sources of finance
3. Main Body: For each source of finance you should
– what it is, what it is best used for and where is comes from
– the pros and cons of using it
– how suitable it would be for the business
4. Conclusion: sum up which sources of finance you
feel are best suited to the your chosen business
What sources of finance do you know?
Make a list of any sources you can think a new
or existing business might use to raise finance.
The sources you need to cover:
• Internal sources of finance: owner’s
savings, capital from retained profits
• External sources of finance: business
loans, overdrafts, commercial mortgage,
factoring, hire purchase, leasing, venture
capital (venture capitalists/business angels,
investment companies, friends and family),
share issue, grants (RDAs/government, E.U.,
Prince’s Trust), trade credit
Why do businesses need finance?
1. Start-up capital - new businesses need this
to buy assets etc
2. Cash-flow – firms must have enough ‘cash’
available to fund the day to day running of the
business (pay suppliers, creditors, wages, etc)
3. Growth - Firms may need funds for expansion
4. Unexpected shortfalls - Firms may need
additional money at short notice to cover
Internal Sources of Finance
1. Retained Profits – money re-invested back
into the business, usually to improve/expand it
2. Improve Credit Control - making sure the
people who owe the firm money pay on time
3. Reduce Stock Levels –avoiding tying up cash
unnecessarily by buying too much stock too
4. Sell Fixed Assets – sell off what is no longer
required (turn the asset back into cash)
5. Owner’s own funds – from savings, an
inheritance, or the sale/financing of personal
assets TYO 2009
External Sources of Finance
• Bank Overdraft
• Trade Credit
• Bank Loan
• Hire Purchase
• Share Issue/Additional Owner
TYO 2008 Investment
To choose the right source of finance
businesses must consider:
1. Amount needed?
2. For how long (the “term”)?
3. What is the money needed for?
4. How quickly is it needed?
5. How much does the finance cost?
(Rate of interest and any fees)
Sources of information to get you started