Syllabus: AQA - AS and A Level Business
Module: 3.5 Financial Management
Lesson: 3.5.3 Making Financial Decisions: Sources of Finance

Introduction

In AQA’s AS and A Level Business specification, section 3.5.3 focuses on a critical financial skill for students: understanding and selecting appropriate sources of finance. This directly supports commercial literacy and workplace readiness, as financial decision-making is central to how businesses operate and grow.

Whether it’s a start-up seeking capital or a mature business managing cash flow, learners must understand the advantages, disadvantages and real-world application of internal and external financing. This topic is foundational for both exams and practical employability, and aligns tightly with Gatsby Benchmark 4 by linking curriculum learning to real-world financial decisions.

Key Concepts

AQA outlines the following key areas under 3.5.3 – “Making Financial Decisions: Sources of Finance”:

• Internal Sources of Finance:

  • Retained profits

  • Sale of assets

  • Owner’s capital

• External Sources of Finance:

  • Bank loans and overdrafts

  • Share capital (equity finance)

  • Debt factoring

  • Venture capital

  • Crowdfunding

• Evaluation of Sources:

  • Suitability for short-term vs long-term needs

  • Cost implications (interest, loss of control, opportunity cost)

  • Risk profile and business objectives

  • Legal structures and shareholder influence

Students are expected to weigh the pros and cons of each source, select the most appropriate for a given scenario, and justify their decisions using commercial logic and financial evidence.

Real-World Relevance

The importance of this topic comes to life through real-world business cases:

• Gymshark, a UK fitness apparel brand, used retained profits to expand internationally without external investors, maintaining control while growing organically.

• Monzo Bank raised over £20 million through crowdfunding, engaging their user base and avoiding traditional VC funding initially.

• Tesla repeatedly issued new shares to raise billions while retaining flexibility, demonstrating the trade-off between dilution and long-term capital.

Teachers can incorporate mini case studies or recent business news to illustrate the strategic use of financing decisions, especially where students can consider risk, control and long-term outcomes.

How It’s Assessed

In AQA AS and A Level Business, financial management is assessed across both Paper 1 and Paper 2 via:

• Short-answer calculations (e.g. costs of borrowing, retained profit)

• Data response questions with a business scenario and financial data

• 10, 12, and 20-mark evaluative questions requiring comparative judgement

• Command words often include ‘Analyse’, ‘Evaluate’, ‘Justify’, and ‘Assess’

Students should practise structured responses that compare sources of finance and justify decisions based on business objectives and risk appetite.

Encourage students to use frameworks like:

• Suitability – Affordability – Risk – Control – Timeframe (SARC-T)

• Stakeholder perspectives – how will different funding choices affect ownership and control?

Enterprise Skills Integration

This topic naturally integrates commercial awareness, financial literacy and critical decision-making, core pillars of the Enterprise Skills Framework:

• Decision-Making & Problem-Solving: Students evaluate trade-offs, opportunity cost, and strategic fit of funding choices.

• Commercial Awareness: They understand how real businesses fund operations, balancing risk and growth.

• Workplace Readiness: Exposure to financial concepts builds confidence in managing real-world challenges, such as budgeting and capital raising.

Simulations offered by Enterprise Skills allow students to apply these decisions in realistic business contexts, validated by employer feedback, which improves higher-order thinking skills and engagement.

Careers Links

Understanding sources of finance links directly to several career pathways and supports Gatsby Benchmarks 4, 5, and 6:

• Financial Analyst – assessing funding performance and viability

• Entrepreneur – selecting appropriate finance routes for start-up or growth

• Banking & Investment – understanding client funding needs and risk

• Accountancy – preparing financial statements and advising on funding strategies

• Corporate Law – managing legal frameworks around financing and ownership

Skills Hub Futures provides contextualised sessions such as “Understanding Business Models” and “Financial Literacy”, giving students the workplace vocabulary and confidence needed for these roles.

Teaching Notes

Common Pitfalls:

• Confusing internal with external finance sources

• Oversimplifying “cheapest” as “best” without considering control or timeframes

• Ignoring legal structure (e.g. share capital isn’t viable for sole traders)

Teaching Strategies:

• Use a comparison grid activity for sources of finance (advantages, disadvantages, best use cases)

• Role-play scenarios: students act as business owners pitching for different types of finance

• Encourage structured writing using comparative phrases and justified recommendations

Extension Activities:

• Invite a local SME or bank representative to speak about funding experiences (supports Benchmark 5)

• Use simulation tools from the Skills Hub Business or Business Simulations to test decision-making under pressure

• Set a research task: students select a real company and analyse its recent financing decisions