Syllabus: International Baccalaureate - Individuals and Societies - Business management (Higher Level)
Module: Unit 3: Finance and Accounts
Lesson: 3.2 Sources of Finance

Introduction

This article supports delivery of the International Baccalaureate (IB) Business Management (Higher Level), Unit 3: Finance and Accounts – 3.2 Sources of Finance, a core element within the Individuals and Societies strand. It explores how businesses identify, evaluate, and select appropriate sources of finance to meet both short-term and long-term needs.

The topic builds critical financial literacy and commercial awareness, helping students understand how organisations manage capital and risk—core competencies across many career paths. With a focus on application and analysis, this unit bridges academic concepts with practical decision-making, making it ideal for integrating real-world scenarios and enterprise skills.

Key Concepts

IB expects students to demonstrate understanding, application, and evaluation of these concepts in 3.2:

• Internal Sources of Finance:
  Retained profits, sale of assets, and personal funds (particularly for sole traders and partnerships).

• External Sources of Finance:
  Short-term: overdrafts, trade credit, and debt factoring.
  Medium- to long-term: loans, share capital, venture capital, business angels, leasing, and grants.

• Suitability and Selection Criteria:
  Factors influencing the choice of finance include purpose, time frame, ownership structure, cost, risk, and control implications.

• Strategic Use of Finance:
  Links to liquidity, gearing, profitability, and organisational objectives.

• Key Financial Terms and Tools:
  Understanding interest rates, opportunity cost of capital, and the role of collateral and creditworthiness.

• Critical Thinking and Evaluation:
  Assessing the appropriateness of different sources in varied business contexts, supported by clear argumentation and use of real-life data.

Real-World Relevance

Understanding sources of finance is not theoretical. It’s a daily decision-making issue in real business environments. For example:

• Tesla and Convertible Bonds:
  Tesla has repeatedly used convertible bonds to finance growth without immediately diluting shareholder value. This shows how large corporates use hybrid financing instruments strategically.

• Gymshark and Private Equity:
  When Gymshark took investment from General Atlantic, it demonstrated how a rapidly scaling SME can leverage equity finance to access international markets while maintaining founder control.

• Crowdfunding and BrewDog:
  BrewDog’s “Equity for Punks” model provides a live example of an alternative external finance method that builds brand loyalty while raising capital.

These examples help students link theory to commercial realities and evaluate the implications of financial choices on business strategy and stakeholder outcomes.

How It’s Assessed

Assessment within IB Business Management is based on command terms across three paper formats:

• Paper 1 (Case Study):
  Questions often require applied analysis. For instance:
  “Evaluate the appropriateness of equity finance for Company X’s expansion plans.”

• Paper 2 (Data Response):
  Students must interpret real-world data and justify financing decisions using evidence.
  Typical command terms include: “Discuss”, “Evaluate”, “Justify”, “Recommend”.

• Internal Assessment:
  A business research project where students explore a real business issue—choosing a source of finance is a common IA topic, ideal for integrating real case studies from local enterprises.

Key assessment guidance:

• Encourage structured answers using frameworks (e.g. cost vs control, short vs long term).

• Link every point to a specific stakeholder or business context.

• Justify choices with relevant business data or realistic assumptions.

Enterprise Skills Integration

This unit naturally supports three core enterprise skill themes:

• Commercial Awareness:
  Students gain insight into how businesses fund operations, expand, and survive in dynamic markets.

• Decision-Making and Problem-Solving:
  The comparison of finance sources is an exercise in risk analysis, opportunity cost, and long-term strategic thinking.

• Workplace Readiness:
  Understanding how financial decisions impact departments, stakeholders, and corporate objectives builds workplace confidence—especially in finance, operations, and leadership roles.

Enterprise Skills tools like Skills Hub Futures embed this topic through scenarios such as “Funding a Product Launch” or “Rescue or Growth?”—challenging students to justify real-world financial choices using constraints and outcomes.

Careers Links

This topic is deeply aligned to Gatsby Benchmarks 4, 5, and 6:

• Benchmark 4 – Linking Curriculum to Careers:
  Teachers can relate internal vs external finance to actual roles in finance departments or funding strategies for marketing and operations.

• Benchmark 5 – Encounters with Employers:
  Bring in guest speakers such as finance officers, bank managers, or local entrepreneurs to explain how they’ve funded business decisions.

• Benchmark 6 – Experience of Workplaces:
  Use enterprise simulations or school-based ‘business projects’ where students must fund and justify a business decision—mirroring real SME challenges.

Relevant career paths:

• Financial Analyst

• Business Development Manager

• Investment Banker

• SME Owner

• Management Consultant

• Corporate Accountant

This topic also builds broader career confidence in sectors like technology, retail, and creative industries, where understanding finance enhances project viability.

Teaching Notes

Tips for Effective Delivery:

• Use practical comparisons (e.g. car leasing vs buying) to demystify abstract terms.

• Integrate student-led mini-investigations on how local businesses raise finance.

• Map each finance source to a real company and invite students to justify their use in context.

Common Pitfalls:

• Students often confuse debt with equity—repeatedly reinforce the cost vs control trade-off.

• Overemphasis on definitions at the expense of application—use past paper questions early.

Extension Ideas:

• Run a simulation where student teams pitch for funding and face questions from peers or local business judges.

• Link with other IB units like Business Strategy or Marketing to explore integrated decisions.

• Use tools like the Skills Hub break-even calculator to test financing assumptions in real-time.