Unit 2 P4 Business Studie

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Unit 2P4

Describe sources of internal and external finance for a selected business

Leasing
There are many ways in which Coombe Dean School uses different types of external and internal types of finance. The school aims to save money in any way they can one way of doing this is through leasing. This is where the school hires or rents a piece of equipment instead of paying the full price to buy it. They pay a regular amount for a period of time until they no longer need the equipment or they can afford to purchase it permanently. The advantages of leasing are that its cheaper in the short run, it can be easily updated and replaced without having to buy a new one or new software, and cash flow management is easier because of the regular cash flow. However disadvantages of leasing is that its more expensive in the long run as the added cost you’d have to pay over the amount of time may add up to more than the price of the product or software itself.

Hire Purchase
Business hires the equipment for a period of time making fixed regular payments. Once payments have finished it then owns the piece of equipment. Hire purchase is different to leasing in that the business owns the equipment when it has finished making payments. With an equipment lease, the equipment is handed back to the leasing provider.

Debt Factoring
A business sells its outstanding customer accounts (those who have not paid their debts to the business) to a debt factoring company.

The factoring company pays the business - say 80-90% of face value of the debts - and then collects the full amount of the debts. Once it has done this it will pay the remaining amount to the business less a charge.

It is a good way of raising cash quickly, without the hassle of chasing payments. BUT it is not so good for profits since it reduces the total revenue received from those sales.

Government Finance
The government and the European Union provide help to businesses for the following reasons:...
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