Sources of Business Finance, Savings and Loans for SS 3

Class: SS 3
Term: First Term
Week: 7
Age: 16 years
Duration: 45 minutes
Subject: Book Keeping
Curriculum Theme: Business Finance and Capital
Previous Lesson: Features of Different Business Organisations
Topic: Sources of Business Finance: Savings, Loans, Plough Back Profit, Shares and Debentures
Subject Matter: relatives, plough back profit, issue of shares and debentures; Source of capital: Outlines the features of sources of capital; Explains types of capital

Specific Objectives

By the end of the lesson, pupils/students should be able to:

Cognitive Domain

• Identify various sources of business finance.
• Explain the meaning of savings, loans, plough back profit, shares, and debentures as sources of finance.
• Outline the features of different sources of capital.
• Explain the different types of capital.

Affective Domain

• Appreciate the importance of selecting appropriate sources of finance for a business.
• Value prudent financial management in business operations.

Psychomotor Domain

• Differentiate between various sources of business finance.
• Illustrate how shares are issued to the public.

Reference Materials

The following resources were used in planning this lesson:

• 2025 Revised 9 Years Basic Education Curriculum
• Relevant State Unified Scheme of Work
• Book Keeping for Senior Secondary Schools by A.O. Okoro
• The HeadTeacher Scheme of work

Instructional Materials

The teacher will teach this lesson with the aid of:

• Pictures illustrating different business activities.
• Chart showing how shares are issued to the public.
• Whiteboard and markers.
• Textbooks on Book Keeping.

Rationale for the Lesson

This lesson provides students with essential knowledge about how businesses acquire funds to operate and expand. Understanding various sources of finance is fundamental for effective financial management and decision-making in any business venture. It equips students with practical insights into capital formation and its implications.

Prerequisite/Previous Knowledge

Students have a basic understanding of business organisations and their need for funds to start and run operations.

Lesson Content/Board Summary

Sources of Business Finance: Savings, Loans, Plough Back Profit, Shares and Debentures

Sources of Business Finance

Businesses require capital to start, operate, and expand. This capital can come from various sources, each with its own characteristics and implications. Key sources include:

1. Personal Savings: Funds contributed by the owner(s) from their personal accumulated wealth. This is common for sole proprietorships and small businesses.
2. Loans from Banks: Funds borrowed from financial institutions, typically with an agreement to repay the principal amount with interest over a specified period. These can be short-term or long-term.
3. Loans from Friends and Relatives: Funds borrowed from acquaintances or family members. These often come with more flexible repayment terms and lower interest rates compared to bank loans, but can also strain personal relationships if not managed carefully.
4. Plough Back Profit (Retained Earnings): Reinvesting a portion of the business’s accumulated profits back into the business instead of distributing them to owners or shareholders as dividends. This is an internal source of finance.
5. Issue of Shares: Raising capital by selling ownership stakes (shares) in the company to the public or private investors. Shareholders become part-owners and receive dividends if the company makes a profit.
6. Issue of Debentures: Raising capital by issuing debt instruments (debentures) to investors. Debenture holders are creditors, not owners, and receive fixed interest payments regardless of the company’s profitability.

Features of Sources of Capital

Different sources of capital have distinct features that businesses consider when making financing decisions:

1. Cost of Capital: This refers to the interest rate on loans or the expected return on equity for shareholders. Some sources are cheaper than others.
2. Risk Involved: Debt capital (loans, debentures) carries a higher risk of default for the business if it cannot make repayments, while equity capital (shares) does not require fixed repayments.
3. Control: Issuing shares dilutes ownership and control, as new shareholders gain voting rights. Debt financing generally does not affect ownership control.
4. Flexibility: Some sources offer more flexibility in terms of repayment schedules or usage of funds.
5. Maturity Period: Capital can be short-term (e.g., overdrafts), medium-term (e.g., term loans), or long-term (e.g., shares, debentures, retained earnings).
6. Security: Lenders often require collateral or security for loans, especially from banks.
7. Availability: The ease with which a business can access a particular source of finance depends on its size, creditworthiness, and market conditions.

Types of Capital

Capital can be broadly classified based on its nature and duration:

1. Share Capital (Equity Capital):
   1. Ordinary Share Capital: Represents the true ownership of the company. Ordinary shareholders have voting rights and receive dividends that vary with company profits.
   2. Preference Share Capital: Holders have a preferential right to receive a fixed dividend before ordinary shareholders and a priority claim on assets during liquidation. They usually do not have voting rights.
2. Loan Capital (Debt Capital):
   1. Debentures: Long-term debt instruments issued by companies to raise funds. Debenture holders are creditors and receive fixed interest payments.
   2. Mortgages: Loans secured by specific assets, usually land or buildings.
   3. Bank Loans: Funds borrowed from banks for various periods, repaid with interest.
3. Working Capital: The capital used for day-to-day operations of a business. It is the difference between current assets (e.g., cash, inventory, debtors) and current liabilities (e.g., creditors, short-term loans).
4. Fixed Capital: Capital invested in long-term assets such as land, buildings, machinery, and equipment, which are used for production over many years.

Teaching Methods/Instructional Techniques

Discussion, Explanation, Question and Answer, Guided Practice.

Instructional Procedures

Step 1: Introduction

Time: 5 minutes

Teaching Skill: Activating Prior Knowledge

Teacher’s Activity: The teacher asks students what they understand by “money” and “business”, and why businesses need money to operate. The teacher then introduces the topic: Sources of Business Finance.

Pupils’ Activity: Students respond to the questions and listen attentively to the introduction of the new topic.

Learning Point: Need for business finance

Step 2: Explanation of Sources of Business Finance (Savings and Loans)

Time: 8 minutes

Teaching Skill: Explanation/Illustration

Teacher’s Activity: The teacher explains personal savings, bank loans, and loans from friends/relatives as sources of finance, providing simple examples for each. The teacher uses the chart to illustrate these concepts.

Pupils’ Activity: Students listen, ask questions for clarification, and make notes.

Learning Point: Savings and loan sources

Step 3: Explanation of Sources of Business Finance (Plough Back Profit, Shares, and Debentures)

Time: 8 minutes

Teaching Skill: Explanation/Demonstration

Teacher’s Activity: The teacher explains plough back profit, issue of shares, and issue of debentures. The teacher uses the chart showing how shares are issued to the public to make the concept concrete.

Pupils’ Activity: Students observe the chart, listen to explanations, and ask questions.

Learning Point: Internal and external finance

Step 4: Outlining Features of Sources of Capital

Time: 7 minutes

Teaching Skill: Listing/Discussion

Teacher’s Activity: The teacher outlines and explains the key features of sources of capital such as cost, risk, control, flexibility, and maturity period, encouraging student participation.

Pupils’ Activity: Students contribute to the discussion and note down the features.

Learning Point: Features of capital sources

Step 5: Explaining Types of Capital

Time: 7 minutes

Teaching Skill: Categorisation/Explanation

Teacher’s Activity: The teacher explains the different types of capital: share capital (ordinary and preference), loan capital (debentures, mortgages, bank loans), working capital, and fixed capital, giving examples for each.

Pupils’ Activity: Students listen, identify differences between types, and take notes.

Learning Point: Classification of capital

Step 6: Guided Practice and Reinforcement

Time: 4 minutes

Teaching Skill: Questioning/Reinforcement

Teacher’s Activity: The teacher asks students to mention and briefly explain one source of capital and one type of capital, reinforcing the concepts taught.

Pupils’ Activity: Students volunteer answers and correct any misconceptions.

Learning Point: Reinforcement of concepts

Step 7: Evaluation/Review

Time: 5 minutes

Teaching Skill: Questioning/Assessment

Teacher’s Activity: The teacher evaluates the learning by asking the following questions:

1. List three sources of business finance.
2. Differentiate between shares and debentures.
3. Mention two features of a good source of capital.
4. Explain the difference between fixed capital and working capital.

Pupils’ Activity: Pupils answer orally and in writing.

Learning Point: Assessment of understanding

Step 8: Note-Taking

Time: 4 minutes

Teaching Skill: Guided Writing

Teacher’s Activity: The teacher guides pupils/students to copy the essential Board Summary notes on sources and types of business finance into their notebooks.

Pupils’ Activity: Pupils/students copy the notes carefully into their notebooks.

Learning Point: Recording lesson content

Step 9: Conclusion

Time: 2 minutes

Teaching Skill: Summarisation

Teacher’s Activity: The teacher briefly summarises the main points of the lesson, reiterating the importance of understanding various sources and types of business finance for effective business management.

Pupils’ Activity: Students listen and prepare for the next lesson.

Learning Point: Consolidation of learning

Continuous Assessment/Further Study

Type: Homework

Instruction: Answer the following questions in your notebook:

1. Explain “plough back profit” as a source of business finance.
2. Compare and contrast ordinary shares and preference shares, stating two differences.
3. Discuss why a new business might prefer a bank loan over issuing debentures.
4. Identify and explain two factors a business should consider when choosing a source of capital.

Lesson Keywords

• Savings – Personal funds contributed by owners.
• Loans – Borrowed funds from banks, friends, or relatives.
• Plough Back Profit – Reinvested business earnings.
• Shares – Units of ownership in a company.
• Debentures – Long-term debt instruments issued by a company.
• Capital – Funds used to operate a business.
• Fixed Capital – Funds for long-term assets.
• Working Capital – Funds for day-to-day operations.

Differentiation

For students who grasp concepts quickly, encourage them to research real-life examples of Nigerian companies that have used different sources of finance. For students who need more support, provide simplified explanations and additional examples, focusing on identifying the basic sources and types of capital.

Suggested Lesson Videos

For further understanding, students can search YouTube for: sources of business finance ss3 bookkeeping

Teacher Guide for Using This Lesson Plan

Before the lesson, ensure you have the charts illustrating share issuance and other relevant pictures ready. Begin by engaging students in a discussion about the financial needs of businesses to activate their prior knowledge. Systematically explain each source of finance, using clear examples and the provided instructional materials. Emphasise the distinctions between debt and equity financing. When discussing features and types of capital, encourage students to relate them to the previously explained sources. During the evaluation, ensure questions cover all key aspects of the lesson. Guide students to copy the Board Summary accurately into their notebooks after the main teaching points have been covered and understood. Provide extra support for struggling learners by simplifying terms and offering more direct examples, while challenging faster learners with deeper analytical questions or case studies.