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Selling unwanted assets

Benefits. Disadvantages. Selling unwanted assets. The asset is no longer owned The asset may still be needed by the business so there will be leasing costs. No interest paid and the finance raised does not have to be repaid No loss of control of the business.

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Selling unwanted assets

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  1. Benefits Disadvantages Selling unwanted assets • The asset is no longer owned • The asset may still be needed by the business so there will be leasing costs No interest paid and the finance raised does not have to be repaid No loss of control of the business Selling an unwanted asset is another form of internal finance, as it turns the own businesses property and assets into cash. The business has to make sure that they do not need the assets however, if it does then it could arrange a sale and leaseback deal.

  2. Share Issue Share issue is when shares are sold to the general public, it is used to pay for long term expansion (eg. buying another business).

  3. Share Issue • Share Issue can be used for long-term expansion in a business. For example. If they want to buy another business when they expand. • The main benefits are that no interest has to be paid and share capital does not have to be repaid • However, dividends will be expected by the share holders so it will still cost money out of their revenue and there may be a loss of control from the original owners. • This type of business can raise capital by selling further shares but selling shares can be quite expensive.

  4. Retained profit • Retained profit is profit kept in the business after tax and dividends have been paid. Retained profit is a form of internal finance as no outside banks or other lenders are involved. When a business makes a profit that it does not pay to shareholders in dividends it keeps it in the business. • Advantage: • No interest • Does not have to be repaid • No loss of control to new owners/shareholders • Disadvantages: • Many businesses may expand but still may not be very profitable • Profits may be too low to finance growth • When profits are low business growth will be slow so loans or share issues might be better options.

  5. You can get 2 different types of loans, a bank loan and a loan from friends and family. Bank Loan A bank loan is when the bank provides you with money and then you pay it back over a certain period of time, with interest. There is a benefit of taking out a bank loan and that is that sometimes big loans don’t have to be paid back quickly. But there are some disadvantages which are that interest is added onto the money that you have to pay back and repayment terms must be met. Loan from a friend or family A loan from a family or friend is where you borrow money from a friend that you know or a member of your family. A benefit of taking a loan from a friend or from family is that the time in which you have to pay it back is flexible and might not be charged interest. But there is a disadvantage that they might not have enough money to be able to lend the entrepreneur as much as they would like. Loans… You could use a bank loan for buying things such as a factory. You would use a mortgage for this. You can use a family/friend loan for smaller things such as office furniture.

  6. Overdraft An overdraft is where a business is allowed to spend more money than they have in their bank account, as and when needed. Advantage: Once it has been set up the business can use it as many time as it wants without asking the banks permission every time. Disadvantages: Overdrafts normally have a high interest rate attached to them and the bank can ask for the money to be paid back in full at any time. You will need to show your cash flow forecast before the arrangement to be made.

  7. Grant • This is money given to a business by a government organisation or charity that never has to be repaid. • Benefits: • the money does not need to be paid back as long as its used for right things • Disadvantage: • Many business don’t qualify for them • Many forms have to be filled out to prove the business is eligible for the grant • For example Nissan was given a grant by the UK government to relocate to Sunderland.

  8. Trade Credit • Trade Credit is when suppliers allow debts for services and goods to be paid one or two months after they are actually delivered. • The main benefit of this is that ‘free’ finance is available for the period of the trade credit. • On the other hand, discounts for immediate payment may be lost. • But, references from the bank and possibly other suppliers may be needed as well as a cash flow forecast.

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