Name:

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 Unit Specification: Unit 3 – Personal and Business Finance
Method of assessment

Externally marked exam (80 marks – 2 hours)

Unit in brief

Learners study the purpose and importance of personal and business finance. They
will develop the skills and knowledge needed to understand, analyse and prepare
financial information.

Unit introduction

This unit includes aspects of both personal and business finance. Personal finance
involves the understanding of why money is important and how managing your
money can help prevent future financial difficulties. It is vital you understand the
financial decisions you will need to take throughout your life and how risk can affect
you and your choices. This unit will also give you an insight into where you can get
financial advice and support.

The business finance aspects of the unit introduce you to accounting terminology,
the purpose and importance of business accounts and the different sources of
finance available to businesses. Planning tools, such as cash flow forecasts and
break-even, will be prepared and analysed. Measuring the financial performance of a
business will require you to prepare and analyse statements of comprehensive
income and statements of financial position.

This unit will provide a foundation for a number of other finance and business units
and will help you to analyse profitability, liquidity and business efficiency. It will give
you the knowledge and understanding to manage your personal finances and will
give you a background to business finance and accounting as you progress to
employment or further training.

Summary of assessment

This unit is assessed by a written examination set by Pearson. The examination will
be two hours in length. The number of marks for the examination is 80. (Section A
contains questions on the personal finance unit content and approximately one-third
of the marks, and Section B contains questions on the business finance unit content
and approximately two-thirds of the marks).

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Assessment outcomes

AO1 Demonstrate knowledge and understanding of business and personal finance

principles, concepts, key terms, functions and theories. Command words: describe,
explain, give, identify, outline Marks: ranges from 1 to 4 marks.

AO2 Apply knowledge and understanding of financial issues and accounting

processes to real-life business and personal scenarios Command words: analyse,
assess, calculate, describe, discuss, evaluate, explain Marks: ranges from 2 to 12
marks.

AO3 Analyse business and personal financial information and data, demonstrating
the ability to interpret the potential impact and outcome in context Command words:
analyse, assess, discuss, evaluate Marks: ranges from 6 to 12 marks.

AO4 Evaluate how financial information and data can be used, and interrelate, in
order to justify conclusions related to business and personal finance Command
words: analyse, assess, discuss, evaluate Marks: ranges from 6 to 12 marks.

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 Learning Outcome D - Select and Evaluate Different Sources of
Business Finance

Activity 1 – Internal Sources of Finance

As we go through each source of internal finance take down what that source of
finance is and, in the table, write the advantages and disadvantages of using that
source of finance.

Internal source Explain the source Advantages Disadvantages

of finance
Retained Profit

Net Current
Assets

Sale of Assets

Activity 2 – Internal Source Scenario

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Ross has decided to buy a van at a cost of £18,000. He has decided to use an
internal source of finance to fund this purchase. His business has made £36,000 in
profit this year.

Evaluate whether using retained profits would be a good source of finance for
his business.

Activity 3 – Knowledge Check Internal Sources of Finance

Outline two advantages of using retained profits as a source of finance

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Explain what retained profits are

Suggest two disadvantages of using net current assets as a source of finance

Explain a benefit of selling assets to finance a business

Describe how net current assets can be used as a source of finance

Activity 4 - External Sources of Finance

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From research or knowledge of external sources of finance complete the spider
diagram with as many external sources as you can. We will go over these in more
detail next.

External
Sources of
Finance

Activity 5 - External Sources

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As we go through the types of external sources of finance fill out the description of
each one along with the advantages and disadvantages of using that source of
finance.

Owner’s capital
Description of source of finance:

Advantages Disadvantages

Loans
Description of source of finance:

Advantages Disadvantages

Crowd funding
Description of source of finance:

Advantages Disadvantages

Activity 6 – Key Questions

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Complete the questions below from memory. If you don’t know the answer look it up
in your booklet or via internet research and put your answer in a different colour.

Explain what a loan is

Compare using owner’s capital as a source of finance with acquiring a loan

Discuss crowd funding as a source of finance

Activity 7 - External Sources Continued

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Mortgages
Description of source of finance:

Advantages Disadvantages

Venture capital
Description of source of finance:

Advantages Disadvantages

Debt factoring
Description of source of finance:

Advantages Disadvantages

Activity 8 – Advantages & Disadvantages

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These advantages and disadvantages match with either a mortgage, venture capital
or debt factoring. Answer the correct source of finance for each advantage or
disadvantage.

1. Improves the businesses cash flow

2. Loss of ownership and control

3. Reduces risk of default on payments

4. Interest charged on amount borrowed

5. Conflict may occur over the direction of the business

6. Large amounts of finance can be acquired

7. Only receive a percentage of the amount the business is owed

8. Secured against asset that could be seized

9. Finance is made available along with advice and mentoring

10. Not a Suitable short-term form of finance

Activity 9 - External Sources Continued

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Hire purchase
Description of source of finance:

Advantages Disadvantages

Leasing
Description of source of finance:

Advantages Disadvantages

Trade credit
Description of source of finance:

Advantages Disadvantages

Activity 10 – Hire Purchase, Leasing, Trade Credit Fill in the Blank

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Complete the sentences by filling in the blanks for the content we have just covered
for hire purchase, leasing and trade credit.

_______________ is used to purchase an asset, such as a delivery van or piece of

equipment. A _________ is paid and the remaining amount for the asset is paid in

monthly instalments over a set period of time. The business does not own the

_______ until all ____________ are made. An advantage of this method is that the

business makes _________ __________ which is good for __________, however it

is only suitable for ________ cost items.

This source of finance is when you _____ an asset that the business requires, such

as a coffee machine. Unlike hire purchase the item is not ________ at the end of the

payments by the business. One advantage of _____________ is that all

maintenance and repairs are the responsibility of the supplier. However, a

disadvantage of this method is that it is likely to cost _____ than ________ the item

outright.

This source of finance allows a business to obtain raw materials and stock but pay

for them at a later date. This method is called ____________. The business may

lose discounts for paying in cash this is a ____________ for the business. Despite

this it may improve their _______ ________. One thing that the business does not

lose from using this source of finance is ________ and __________. This method is

mainly used as a _______ term source of finance.

Activity 11 – External Sources Continued

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Grants
Description of source of finance:

Advantages Disadvantages

Donations
Description of source of finance:

Advantages Disadvantages

Peer to Peer Lending

Description of source of finance:

Advantages Disadvantages

Invoice discounting
Description of source of finance:

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 Advantages Disadvantages

Activity 12 – Sources of Finance Leaflet

Create a leaflet that explains sources of finance to business owners. Cover at least
one of the following:

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  All the sources of internal finance available to a business
 One internal source in detail
 All sources of external finance available to a business
 One external source in detail

This can be done using any software you want or by hand. Ensure it is visual and
has business examples where possible.

Activity 13 – Sources Scenario 1

Holly has just completed a business qualification and has decided to set up a small
business buying and selling limited edition trainers. She knows that there is a wide

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range of finance sources available to her but finds it very complicated. She has £750
saved up in her bank account but has come to you for advice on which 3 sources of
finance you would recommend.

Evaluate 3 sources of finance and suggest the best one for her situation.

Activity 14 – Sources Scenario 2

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One year ago, Aman started a high street premium burger restaurant which allows
customers to customise their burger to their exact specification. It has been
incredibly successful, and Aman is now looking to open a second restaurant in a
nearby town. However, he is unsure which is the best way to source finance for this
expansion. He is considering using retained profits, venture capital or crowdfunding.

Make clear comparisons between the options Aman is considering and then
support this with justified recommendations of which he should choose for
this burger restaurant expansion.

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 Activity 15 – Sources Scenario 3
Alister is currently running a successful business but needs to purchase 5 new
company cars for his sales team. He currently has enough money in retained profit in
the business to buy the cars outright but is wanting to investigate getting a bank loan
or leasing the vehicles.

Discuss all three options that Alister is considering and provide him with a
clear recommendation.

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 Activity 16 – Learning Outcome D Kahoot Quiz
Test your knowledge of Learning Outcome D of Unit 3: Personal and Business
Finance by clicking this link: Play Kahoot

Once you have completed the quiz, answer the questions below to assess your
strengths and areas of development.

What did you score on the Kahoot quiz?

/20

What areas of Learning Outcome D can you identify as your strengths after playing
the quiz?

What areas of Learning Outcome D can you identify as your development areas after
playing the quiz?

How do you plan to develop the areas you have identified to increase your
knowledge and understanding of these topics?

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 Activity 17 – Word Scramble Learning Outcome D

1. OSUCERS FO NCFINAE ________________________________

2. NATINELR SRUOESC __________________________________
3. XRALNETE ESCOSUR __________________________________
4. NCVIEIO IIDCUOTGNNS _______________________________
5. DOONIATSN _________________________________________
6. PEER OT EEPR DLNNGIE ______________________________
7. DREAT ECRITD ______________________________________
8. EHRI ECHSRPAU _____________________________________
9. ERENTUV ICPLAAT ___________________________________
10. TDRNEIAE TOISPFR __________________________________
11. ESAL OF ASESST ____________________________________
12. TNE ENRTUCR ESTSAS ________________________________

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 Activity 18 – Word Search Learning Outcome D

C G W W Q H T K O I K E G A G T R O M W X Q V O
I C M Y K E X N C D M T R A D E C R E D I T D D
V A C I L I K W L A T I P A C E R U T N E V T D
T M S N G Z D E B T F A C T O R I N G R E O S A
Z X U V F E K C B S E C R U O S L A N R E T N I
N W P O A R W Y Y R B A Y V A T Y G T W X M L Y
K W G I Q J M N Z O V F R L N H P M C Y H B P B
F H P C Y K D H P M C V E G U F R Z P L P P D X
V M N E P O H Q E S N O S G A X Y D C Z Z J Y M
O H O D U I O R R Y F H K X F V S E K A C V R J
H W H I O O F V P A E S A H C R U P E R I H M V
D W U S G D N S S I H X W J Z U F M T Y K P I K
R W I C C H N S Q K R A V R U M E T M C F Q V R
Q H A O M N E T C U R R E N T A S S E T S J H N
U Z O U K T A D C Z K W L X M W D L I Z R G H W
B F W N S J O F D C L A K Q Y X M U M S I N K A
C B V T F H F S E C R U O S L A N R E T X E Z F
I U G I P A G X W O E I T S M F B P Y C V Z B W
P W D N F L C T E C X C D E O Q R D J D I U R S
Y P W G G R V E C N A N I F F O S E C R U O S I
J E Y E C H V S M M A O W G A F P B O H U R Q Z
H M D M N R E T A I N E D P R O F I T S Z X V X
R Q W R I B M G J F T V P Y D R B N M A X P P W
U M I O T O Z B S G M L H M D F H Y U R V M Y N

   net current assets       sale of assets       retained profits       venture capital       

hire purchase       trade credit       debt factoring       mortgage       
invoice discounting       external sources       internal sources       
sources of finance   

   

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 Activity 19 – Crossword Learning Outcome D

2 3

6 7

10

Across Down
2. Money invested by an individual or 1. Current assets minus current liabilities.
group that is willing to take the risk of
funding a new business in exchange for 3. __________ sources of finance refer to

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an agreed share of the profits. money that comes from outside a
business.
5. This type of finance is paid back within
one year. 4. ___________ sources of finance come
6. This source of finance is money lent to from within the business.
an individual or business that is paid off 7. A large number of people investing
with interest over an agreed period of small amounts of money in a business,
time. Usually this rate of interest is fixed. usually online.

8. A sum of money borrowed from the

bank that is secured against a property,
usually over 25 years.

9. This type of finance is paid back over a

period more than a year.

10. This source of external finance is from

the owner’s personal finances and is used
to finance the business.

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 Activity 20 – Personal and Business Finance Learning Outcome D

Unit 3: Personal and Business Finance Checklist

Learning Outcome D: Select and Evaluate Different Sources of

Business Finance
Topic Your explanation of the Exam ready?
terminology
D1 – Sources of Finance
Internal Sources

Retained profit

Net current assets

Sale of assets

External Sources

Owner’s capital

Loans

Crowd-funding

Mortgages

Venture capital

Debt factoring

Hire purchase

Leasing

Trade credit

Grants

Donations

Peer to peer lending

Invoice discounting

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