UK0,M<$b@mevgɦmJ8s =-bU#b5')byiDz)%2.&_NKpGtJ|QGdr:>Fj0rA ؞F&!| 4`,mz3[
Study notes

Finance: Considerations for a Startup (GCSE)

  • Levels: GCSE
  • Exam boards: AQA, Edexcel, OCR, IB

Often the hardest part of starting a business is raising the money to get going. An entrepreneur might have a great business idea and clear plan for how to exploit a market opportunity. However, unless sufficient finance can be raised, the entrepreneur will struggle to make the most of the opportunity.Raising finance for a start-up requires careful planning.

The entrepreneur needs to decide:

  • How much finance is required? Raising finance is hard work and expensive – the start-up should avoid having to go through the process too often!
  • When and for how long the finance is needed? A useful distinction can be made between long-term, medium-term and short-term finance
  • What security (if any) can be provided? This will affect the ability of the business to raise a bank or other loan where the lender requires some security (or "collateral")
  • Whether the entrepreneur is prepared to give up some control (ownership) of the start-up in return for investment?
  • Whether the cost of the finance (e.g. interest charged) is justified

The finance needs of a start-up should also take account of these key areas:

  • Set-up costs -the costs that are incurred before the business starts to trade
  • Getting ready to produce - the fixed assets that the business needs before it can begin to trade
  • Working capital (the stocks needed by the business –e.g. raw materials + allowance for amounts that will be owed by customers once sales begin)
  • Growth and development (e.g. extra investment in capacity)

An important consideration when obtaining finance for a business is when and for how long the finance is needed. A useful distinction can be made between long-term, medium-term and short-term finance. The table below summarises the main examples and uses of each category:

Long-term

Medium-term

Short-term

Finances the whole business over many years

Finances major projects or assets with a long-life

Finances day-to-day trading of the business

Examples:

Examples:

Examples:

Retained profits

Share capital

Venture capital

Mortgages

Long-term

Bank loans

Bank loans

Leasing

Hire purchase

Government grants

Bank overdraft

Trade creditors

Short-term

Bank loans

Factoring

Subscribe to email updates from tutor2u Business

Join 1000s of fellow Business teachers and students all getting the tutor2u Business team's latest resources and support delivered fresh in their inbox every morning.

You can also follow @tutor2uBusiness on Twitter, subscribe to our YouTube channel, or join our popular Facebook Groups.

Teaching Vacancies

Recruitment

Advertise your vacancies with tutor2u

Much cheaper & more effective than TES or the Guardian. Reach the audience you really want to apply for your teaching vacancy by posting directly to our website and related social media audiences.

Find our more ›

Advertise your teaching jobs with tutor2u