Explain one reason why a business may need finance.

Business

IGCSE&ALevel

CAIE

Exam No：9609_m24_qp_12 Year：2024 Question No：3(b)

Answer:

Indicative content
Responses may include:
AO1 Knowledge and understanding - 1 mark \(\qquad\) for identifying one reason why a business may need finance Reasons why a business may need finance include:
- start up a business
- grow/expand the business
- survive
- run the business
- working capital
- buy capital equipment

AO2 Application -2 marks for developed explanation of one reason why a business may need finance. 1 mark \({ }^{10 \%}\) for limited explanation of one reason why a business may need finance.
- start-up finance or capital, purchase assets e.g. premises, equipment, machinery, tools, vehicles
- pay for market research and promotion to develop product and create demand
- need more finance in the early stages before getting established or when facing a crisis
- money to start trading, pay staff wages, utility bills and suppliers on time
- having funds to pay for additional assets, new machinery, new staff, additional raw materials

Accept all valid responses.

Knowledge points:

5.1.1.1 reasons why businesses need finance to start up, to grow and to survive

5.1.1.2 the distinction between short and long term need for finance

5.1.1.3 the difference between cash and profits

5.1.1.4 business failure as a consequence of lack of finance: bankruptcy, liquidation and administration

5.1.2.1 the meaning and importance of working capital

5.1.2.2 managing trade receivables and trade payables

5.1.2.3 the distinction between capital expenditure and revenue expenditure

5.2.1.1 the relationship between the form of business ownership and availability of sources of finance

5.2.2.1 internal sources of finance: owners investment, retained earnings, sale of unwanted assets, sale and leaseback of non-current assets, working capital

5.2.2.2 external sources of finance: share capital, debentures, new partners, venture capital, bank overdrafts, leasing, hire purchase, bank loans, mortgages, debt factoring, trade credit, micro-finance, crowd funding and government grants

5.2.3.1 the factors influencing the choice of sources of finance in a given situation: cost, flexibility, need to retain control, the use to which it is put, level of existing debt

Explain one reason why a business may need finance.

Answer:

Knowledge points:

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