Page 248 - Cambridge IGCSE Business Studies

Cambridge IGCSE Business Studies Section 5 Financial information and decisions

CASE STUDY TASK

a What is meant by ‘start-up capital’?
b Identify two day-to-day expenses of Milena’s business.
c Using an example from Milena’s business explain what is meant by ‘capital expenditure’.
d Why does Milena need more finance for her business?

KEY TERMS Short-term and long-term finance
Some business activities and decisions need large amounts of money and the
Long-term finance: debt

or equity used to finance the business will invest this money over several years – long-term finance, for example
purchase of non-current assets building a new factory. Other activities need smaller amounts of money over
or finance expansion plans. Long- a short period of time – short-term finance, for example the purchase of new

term debt is borrowing a business
computers.
does not expect to repay in less
than five years.
ACTIVITY 19.1
Short-term finance: loans or
debt that a business expects to
pay back within one year. Leroy is considering opening a tailoring shop in your town. He plans to make men’s
jackets, trousers, shirts and suits and sell these from the same premises. He would
also like to offer a home delivery service.

1 Make a list of all the resources Leroy will need when setting up his business.
TOP TIP 2 Identify the five most important items or resources that you think Leroy will have
Most short-term finance is to help to finance when setting up his business.
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manage cash-flow problems.
3 Use the internet, local newspapers and any other resources you think useful to
If capital is needed to finance
find out the cost of each of these five items.
the purchase of items such as
non-current assets, for example 4 Compare your list with the lists of other members of your class and agree
machinery, then it is more likely on a list of items and their cost (take an average of everyone’s costs for
to require long-term finance each item).
sources. 5 Total the costs for each of the items the class has identified. This will provide an
approximation of the minimum start-up capital that Leroy needs when setting
up his business.

TEST YOURSELF
1 State three reasons why businesses may need finance.

2 Outline the difference between short-term and long-term finance.

Main sources of capital

All of the sources of finance you will learn about in this chapter are appropriate for

limited companies, but they may not be suitable for sole traders and partnerships.

This is because these unincorporated businesses:
■ cannot raise capital through the sale of shares
■ usually only need to finance small capital expenditure projects

■ are often considered by lenders to be too high risk for large-scale borrowing.
Businesses can fund their activities using both internal and external sources of
fi nance.