Revision Notes

Sources of finance

Source may be internal or external
Internal: reduce costs. This may be by motivation (reducing labour turnover, absenteeism, lateness) and improving output through training.
Internal: keep (retain) profits instead of giving it out as dividends.
Internal: increase sales (see marketing) and/or sell assets.
External: if a company (especially a public one) issue/sell shares. Advantage: no interest payable BUT may pay a dividend. (Discretionary)
External: borrow- long term loan. This may be a debenture. Must pay interest on loans - this is payable before any dividends. If most of a firm's finance is through loans compared to shares then the firm is said to be highly geared. (See Financial Accounting)
Hire purchase/credit sale though different both allow the buyer to defer to defer/stagger payments.
Lease instead of buy OR sell assets and then lease them back.
External: debt factoring - selling your debtors (people who owe you money) to a third party. Receive a reduced fee but something is better then nothing!
The higher the cost/interest then the more likely the source of finance is short term: overdraft has a high interest and therefore should be seen as a short-term loan.