Finance Function and Sources of Finance
Why businesses need finance and how purpose, time, cost, control, risk and business circumstances determine source suitability.
How to study for GCSE Business
Learn each concept as a cause-and-effect chain, practise calculations with units, apply evidence from the case and justify decisions against the business's objectives.
Core concepts
Concept 1
Businesses need finance for start-up, working capital, replacement, investment and growth, and the purpose affects the suitable term and amount.
Exam cue: Identify the amount, purpose and required duration before selecting a source.
Concept 2
Internal finance comes from within the business or owners; external finance comes from outside providers and may involve interest, repayment or ownership consequences.
Exam cue: Explain both the cash-flow effect and any control or risk consequence.
Concept 3
Suitability depends on availability, cost, duration, cash-flow capacity, security, control and risk rather than a source being universally best.
Exam cue: Compare two realistic sources using the facts given about the business.
Risk pitfalls and guardrails
Calling revenue or profit automatically available cash.
Guardrail: Do not stop at a generic advantage or disadvantage: use the case, check the calculation and keep board-specific paper claims separate from the common core.
Recommending a source without considering repayment timing or eligibility.
Guardrail: Do not stop at a generic advantage or disadvantage: use the case, check the calculation and keep board-specific paper claims separate from the common core.
Assuming external finance always means borrowing.
Guardrail: Do not stop at a generic advantage or disadvantage: use the case, check the calculation and keep board-specific paper claims separate from the common core.
Memory anchors
Internal finance
Funds generated by the business or contributed from within its ownership.
External finance
Funds supplied by an outside lender, investor or finance provider.
Working capital need
Finance required to support day-to-day trading and timing gaps.
Debt finance
Borrowed funds normally repaid with an agreed financing cost.
Suitability test
Purpose, amount, time, cost, cash flow, control, security and risk.
Checkpoint rule
Do the check-up only after you can summarize each concept in one sentence and identify one dangerous pitfall from memory.
Knowledge Check (after reading)
Short check-up to confirm understanding of this module.
Check-up Questions
Why does a new business usually need start-up finance?
A profitable wholesaler allows customers 60 days to pay but must pay suppliers in 20 days. What finance need may result?
Answer all questions to submit.
Next step personalized recommendations
Continue learning
Move forward only after this module is stable.
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