Find the HSC Business Studies CRAM Apps on facebook and on the App Store (from 26/07). These notes cover the advantages and disadvantages of each of the external sources of finance. They're a tiny part of the new Finance CRAM App (available on the App Store from 26/07). It has three-and-a-half HOURS of VIDEOS that explain everything you need to know about the finance topic. Like the facebook page for all the latest info about upcoming Business Studies apps and for help with the upcoming Trial exam. Once you've clicked Like, you'll find out the MINUTE that the app is available so you can start cramming. Even if you're a better student, this is still another resource you can use. Let's face it, there are parts of every major textbook that aren't entirely clear. Quick link to fb page: http://www.tinyurl.com/HSCBusinessCRAM Quick link to App Store: http://www.tinyurl.com/financeCRAM (from 26/07) Sample VIDEOS on YouTube: http://www.youtube.com/watch?v=fG2LmezkOgY&feature=plcp http://www.youtube.com/watch?v=LXUWNzlFfIE&feature=plcp

1. Enjoy
these
FREE
NOTES
They’re
part
of
the
new
HSC
Business
Studies
CRAM
app
FINANCE
The
app
includes
THREE
AND
A
HALF
HOURS
of
videos
and
visual
explanaIons
of
all
the
most
important
parts
of
the
topic
that
you
can
take
with
you
wherever
you
go.
To
stay
up
to
date
on
the
latest
updates,
Like
the
Facebook
page
h?ps://www.facebook.com/HscBusinessStudiesCramApps)
The
Finance
App
will
be
available
on
July
26th,
2012
h?p://itunes.apple.com/au/app/finance-­‐business-­‐studies-­‐cram/id545069870?ls=1&mt=8

2. 2.
INFLUENCES
ON
FINANCIAL
MANAGEMENT
Long-­‐term
Short-­‐term
EXTERNAL
OverdraW
Mortgages
Debentures
(debt) Commercial
bills
Factoring
Unsecured
Notes
Leasing
Private
Equity
EXTERNAL
(equity)
Ordinary
shares External
sources
are
New
issues
Rights
issues
from
OUTSIDE
the
business
Placements e.g.
Banks
Share
purchase
plans e.g.
Shareholders

3. 2.
INFLUENCES
ON
FINANCIAL
MANAGEMENT
ADVANTAGES DISADVANTAGES
Doesn’t
increase
debt
levels Future
profits
have
to
be
shared
with
more
investors
(ownership
is
‘diluted’)
No
interest
payments Change
of
ownership
structure
Private
Equity
EXTERNAL
(equity)
Ordinary
shares
New
issues
Rights
issues
Placements
Share
purchase
plans

4. 2.
INFLUENCES
ON
FINANCIAL
MANAGEMENT
External
sources
of
finance
Equity
sources
1.
Ordinary
shares
Just
write
‘ordinary’
before
the
word
shares
(you
don’t
need
to
know
the
“not
ordinary”
type)
INVESTORS
PAY
THE
BUSINESS
MONEY…
…
for:
-­‐
Share
of
OWNERSHIP
-­‐
Share
of
PROFITS
through
dividend
payments
RISKS:
1.
The
business
may
not
make
a
profit.
2.
The
owners
may
decide
to
reinvest
the
profits
instead
of
sharing
them.
-­‐
VOTING
RIGHTS
BUT:
Only
according
to
number
of
shares

5. 2.
INFLUENCES
ON
FINANCIAL
MANAGEMENT
External
sources
of
finance
Equity
sources
1.
Ordinary
shares
ADVANTAGES DISADVANTAGES
No
interest
payments The
process
of
issuing
shares
(e.g.
through
an
IPO)
is
expensive
and
takes
longer
than
debt
finance
Even
though
you
CAN
(and
should)
share
Not
enough
people
might
buy
them
–
called
future
profits
(‘dividends’),
there
is
sIll
a
‘undersubscripIon’
(CS
Facebook)
choice
in
paying
(unlike
loan
repayments)
DiluIon
of
ownership
(profits
shared
between
more
owners)
Sample
from
Finance
-­‐
HSC
Business
Studies
CRAM
App
(available
26/07)
www.Inyurl.com/financeCRAM
Like
the
facebook
page
for
the
latest
updates
and
giveaways
-­‐
www.Inyurl.com/HSCBusinessCRAM

6. 2.
INFLUENCES
ON
FINANCIAL
MANAGEMENT
External
sources
of
finance
Equity
sources
1.
Ordinary
shares
i.
New
issues ii.
Rights
issues iii.
Placements iv.
Share
purchase
plans
WAYS
of
issuing
ordinary
shares
Sample
from
Finance
-­‐
HSC
Business
Studies
CRAM
App
(available
26/07)
www.Inyurl.com/financeCRAM
Like
the
facebook
page
for
the
latest
updates
and
giveaways
-­‐
www.Inyurl.com/HSCBusinessCRAM

7. 2.
INFLUENCES
ON
FINANCIAL
MANAGEMENT
External
sources
of
finance
Equity
sources
1.
Ordinary
shares
i.
New
issues
I PO
At
first,
this
is
done
through
an
1. Issue
a
Prospectus
(here’s
everything
you
need
to
know
about
our
business)
2.
Sell
shares
on
the
ASX
nital ublic ffering
ADVANTAGES DISADVANTAGES
If
successful,
gets
the
largest
amount
of
funds Expensive
and
takes
longer
than
debt
finance
If
it
is
‘underwriben’,
it
is
fairly
safe
(a
business
Not
enough
people
might
buy
them
–
called
can
agree
to
buy
any
unsold
shares) ‘undersubscripIon’
(CS
Facebook)

8. 2.
INFLUENCES
ON
FINANCIAL
MANAGEMENT
External
sources
of
finance
Equity
sources
1.
Ordinary
shares
ii.
Rights
issues
AFTER
the
EXISTING
SHAREHOLDERS
get
to
buy
MORE
SHARES
at
a
SPECIAL
PRICE
ADVANTAGES DISADVANTAGES
Cheaper
than
the
IPO Lower
price
Faster
than
the
IPO Less
possible
buyers

9. 2.
INFLUENCES
ON
FINANCIAL
MANAGEMENT
External
sources
of
finance
Equity
sources
1.
Ordinary
shares
iii.
Placements
PRIVATELY
selling
shares
(NOT
through
an
IPO)
ADVANTAGES DISADVANTAGES
Cheaper
than
an
IPO May
not
raise
as
much
as
an
IPO
would
Faster
than
an
IPO
Easier
than
an
IPO

10. Enjoy
these
FREE
NOTES
They’re
part
of
the
new
HSC
Business
Studies
CRAM
app
FINANCE
The
app
includes
THREE
AND
A
HALF
HOURS
of
videos
and
visual
explanaIons
of
all
the
most
important
parts
of
the
topic
that
you
can
take
with
you
wherever
you
go.
To
stay
up
to
date
on
the
latest
updates,
Like
the
Facebook
page
h?ps://www.facebook.com/HscBusinessStudiesCramApps)
The
Finance
App
will
be
available
on
July
26th,
2012
h?p://itunes.apple.com/au/app/finance-­‐business-­‐studies-­‐cram/id545069870?ls=1&mt=8

11. 2.
INFLUENCES
ON
FINANCIAL
MANAGEMENT
External
sources
of
finance
Equity
sources
1.
Ordinary
shares
iv.
Share
purchase
plans
Shareholders
can
choose
to
get
SHARES
instead
of
DIVIDENDS
ADVANTAGES DISADVANTAGES
Quick Probably
at
a
lower
price
than
offering
new
shares
Cheap

12. 2.
INFLUENCES
ON
FINANCIAL
MANAGEMENT
External
sources
of
finance
Equity
sources
2.
Private
Equity
There
are
‘private
equity’
firms
businesses
that
buy
other
businesses
(or
part
of
them)
ADVANTAGES DISADVANTAGES
Access
to
enormous
amounts
of
money Original
owners
lose
a
lot
of
control
Easier
than
an
IPO Somegmes
private
equity
firms
are
not
interested
in
growing
the
business
(they
just
want
to
cut
costs
or
even
shut
down
the
business
and
sell
its
assets)
SomeImes
the
investors
have
good
ideas
for
the
business

13. 2.
INFLUENCES
ON
FINANCIAL
MANAGEMENT
External
sources
of
finance
Long-­‐term
Short-­‐term
EXTERNAL
OverdraW
Mortgages
Debentures
(debt) Commercial
bills
Factoring
Unsecured
Notes
Leasing
BORROWING

14. 2.
INFLUENCES
ON
FINANCIAL
MANAGEMENT
External
sources
of
finance
Long-­‐term
Short-­‐term
EXTERNAL
OverdraW
Mortgages
Debentures
(debt) Commercial
bills
Factoring
Unsecured
Notes
BORROWING
Leasing
ADVANTAGES DISADVANTAGES
No
change
to
ownership
structure Interest
payments
Faster
and
more
straigheorward
than
an
IPO Compulsory
payments
at
set
dates
(unlike
dividends)
Tax
advantages Security
might
be
required
(e.g.
mortgage
may
require
using
the
property
as
collateral)

15. 2.
INFLUENCES
ON
FINANCIAL
MANAGEMENT
External
sources
of
finance
Debt
sources
1.
SHORT-­‐term
borrowing
<
1
year
repay
in
Short-­‐term
i.
OverdraW
ii.
Commercial
bills
iii.
Factoring

16. 2.
INFLUENCES
ON
FINANCIAL
MANAGEMENT
External
sources
of
finance
Debt
sources
1.
SHORT-­‐term
borrowing
i.
OverdraW
SHORT
NOTICE
short-­‐term
loan
from
a
BANK
(usually
smaller
amounts
<$100,000)
ADVANTAGES DISADVANTAGES
Available
at
short
noIce Higher
interest
rate
(and
variable)
Flexible The
bank
can
demand
repayment
at
any
Ime
(usually
don’t
though)
Usually
not
secured
against
assets APP
STORE
LINK:
www.Inyurl.com/financeCRAM
FB
PAGE
LINK:
www.Inyurl.com/HSCBusinessCRAM

17. 2.
INFLUENCES
ON
FINANCIAL
MANAGEMENT
External
sources
of
finance
Debt
sources
1.
SHORT-­‐term
borrowing
ii.
Commercial
Bills
SHORT
TERM
loan
from
a
BANK
or
NBFI
(usually
LARGER
amounts
>$100,000)
(usually
7-­‐180
days)
ADVANTAGES DISADVANTAGES
Only
interest
is
paid
(unIl
the
end) Usually
secured
against
assets
Flexible
(length
of
Ime;
amount
of
interest)
Sample
from
Finance
-­‐
HSC
Business
Studies
CRAM
App
(available
26/07)
www.Inyurl.com/financeCRAM
Like
the
facebook
page
for
the
latest
updates
and
giveaways
-­‐
www.Inyurl.com/HSCBusinessCRAM

18. 2.
INFLUENCES
ON
FINANCIAL
MANAGEMENT
External
sources
of
finance
Debt
sources
1.
SHORT-­‐term
borrowing
iii.
Factoring
BALANCE
SHEET
‘Accounts’
are
when
money
is
owed.
‘Accounts
RECEIVABLE’
are
when
your
business
is
OWED
money
BY
CUSTOMERS.

19. 2.
INFLUENCES
ON
FINANCIAL
MANAGEMENT
External
sources
of
finance
Debt
sources
1.
SHORT-­‐term
borrowing
iii.
Factoring
But
what
if
they’re
not
paying
on
gme?
What
if
you
need
that
money
NOW?
‘Accounts
RECEIVABLE’
are
when
your
business
is
You
can
SELL
your
‘accounts
receivable’
OWED
money
BY
to
a
business
(called
a
‘Debt
Factor’)
CUSTOMERS.
for
a
percentage
of
their
total
value.

20. 2.
INFLUENCES
ON
FINANCIAL
MANAGEMENT
External
sources
of
finance
Debt
sources
1.
SHORT-­‐term
borrowing
iii.
Factoring
ADVANTAGES DISADVANTAGES
Your
business
gets
cash
straight
away It’s
usually
only
80%
of
what
you
were
owed
You
save
on
Ime
and
effort
chasing
customers
APP
STORE
LINK:
www.Inyurl.com/financeCRAM
(legal
bills
too) FB
PAGE
LINK:
www.Inyurl.com/HSCBusinessCRAM
You
can
SELL
your
‘accounts
receivable’
to
a
business
(called
a
‘Debt
Factor’)
for
a
percentage
of
their
total
value.

21. 2.
INFLUENCES
ON
FINANCIAL
MANAGEMENT
External
sources
of
finance
Debt
sources
2.
LONG-­‐term
borrowing
repay
in
>
1
year
Long-­‐term
i.
Mortgages
ii.
Debentures
iii.
Unsecured
Notes
iv.
Leasing

22. 2.
INFLUENCES
ON
FINANCIAL
MANAGEMENT
External
sources
of
finance
Debt
sources
2.
LONG-­‐term
borrowing
i.
Mortgage
LARGE
loans
from
a
bank
SECURED
AGAINST
ADVANTAGES
the
business’s
land/buildings
Access
to
large
amounts
of
money
DISADVANTAGES (especially
for
SMEs)
Not
meeIng
repayments
might
lead
“Unlocks”
the
value
that
the
business
has
in
its
land/buildings
(so
the
money
can
be
to
foreclosure used
to
grow
the
business)

23. 2.
INFLUENCES
ON
FINANCIAL
MANAGEMENT
External
sources
of
finance
Debt
sources
2.
LONG-­‐term
borrowing
ii.
Debentures
LARGE
loans
SECURED
AGAINST
the
business’s
assets
FROM
INVESTORS
(instead
of
a
bank) but…
The
right
to
collect
the
money
can
be
SOLD
(so
you
won’t
necessarily
be
paying
back
the
same
people)

24. 2.
INFLUENCES
ON
FINANCIAL
MANAGEMENT
External
sources
of
finance
Debt
sources
2.
LONG-­‐term
borrowing
iii.
Unsecured
notes
LARGE
loans
FROM
INVESTORS APP
STORE
LINK:
www.Inyurl.com/financeCRAM
FB
PAGE
LINK:
www.Inyurl.com/HSCBusinessCRAM
NOT
SECURED
AGAINST
the
business’s
assets
ADVANTAGES DISADVANTAGES
No
security
required Interest
rate
is
usually
higher
(because
of
the
extra
risk
to
the
lender)

25. Enjoy
these
FREE
NOTES
They’re
part
of
the
new
HSC
Business
Studies
CRAM
app
FINANCE
The
app
includes
THREE
AND
A
HALF
HOURS
of
videos
and
visual
explanaIons
of
all
the
most
important
parts
of
the
topic
that
you
can
take
with
you
wherever
you
go.
To
stay
up
to
date
on
the
latest
updates,
Like
the
Facebook
page
h?ps://www.facebook.com/HscBusinessStudiesCramApps)
The
Finance
App
will
be
available
on
July
26th,
2012
h?p://itunes.apple.com/au/app/finance-­‐business-­‐studies-­‐cram/id545069870?ls=1&mt=8

26. 2.
INFLUENCES
ON
FINANCIAL
MANAGEMENT
External
sources
of
finance
Debt
sources
2.
LONG-­‐term
borrowing
iv.
Leasing
LEASE
(“rent”)
assets
e.g.
equipment
e.g.
buildings
instead
of
buying
them
ADVANTAGES DISADVANTAGES
Tax
advantages The
business
doesn’t
own
the
asset
Gives
the
business
access
to
property/ The
total
cost
over
the
Ime
will
be
higher
than
equipment
without
the
lump
sum
payment
if
they
paid
upfront.
(which
frees
up
money
for
other
needs)