Business Plan Disadvantages

GCSE Business help?

Q3. Sarah Jane is considering trying to finance her business by:
-Taking out a bank loan;
-using retained profit;
-using trade credit.

Bank Loan:
Benefits – Large amount of credit can be gained
Drawbacks – Must convince bank that the business has conducted sufficient research and the project will not fail – must provide business plan
Business is susceptible to changes in interest rates
Business may become highly geared if too many loans are taken out

Retained Profit:
Benefits – Using businesses own money, no interest rates or liability
Useful when small amounts of money are needed to be raised, without any hassle
Drawbacks – Shareholders believe that they should be rewarded for their investment in the business and usually get pissed off when businesses retain their profits instead of giving dividends to shareholders
Not suitable when large amounts of finance of needed.

Trade Credit:
Benefits – Means that the business can pay for expansion, machinery etc and pay later when the growth provides extra profit
Drawbacks – If it is a new business, suppliers are unlikely to offer trade credit
Can cause problems with cash flow if finances aren’t organised and may lead to the business not being able to offer credit to its customers in order to have enough working capital to pay off its debts

There’s the benefits and drawbacks, you have to do the application and evaluation by yourself!

Rep. Boustany on Fox Business on Disadvantages of a Government-Run Plan

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