1.3.4 - Sources Of Buisness Finance Flashcards
Capital
Money
Why is it important for businesses to have a sufficient amount of capital?
Starting Up - Buildings, machinery, raw materials and office equipment
Working capital - Short term finance required for the day-to-day running of a business
Unforeseen Events - Sudden decline in sales, large customer fails to pay on time or pay expenses quickly
Internal sources of finance
Finance which is raised internally, it does not increase the debts of the business.
Retained profit
Sale of unwanted assets
Personal savings
Overdraft
A facility offered by a bank that allows holder to borrow money at short notice
Advantages of an overdraft
• Very quick to arrange
• Only pay interest on amount overdrawn
• A good short term solution to a cash flow problem
Disadvantages of an overdraft
• Only suitable for smaller amounts
• Has to be repaid within a short amount of time
• Interest or charges are paid
Trade credit
Items are bought from suppliers on a ‘buy now pay later’ basis.
Advantages of trade credit
• Gives the business more cash to use in the immediate future
• Doesn’t incur interest charges
Disadvantages of trade credit
• Can only be used to buy certain goods
• Bills usually have to be settled with 30, 60, or 90 days
Types of long term finance:
Personal savings
Venture capital
Share capital
Loans
Retained profit
Crowdfunding
Venture capital
Money to invest in a business is sourced from individuals groups of people who wish to invest their own money into a new business
Share capital
Money to invest in a business is raised by the business issuing shares that it then sells to those who wish to invest into the company
Retained profit
Money that a business keeps rather than paying out to its shareholders
Crowdfunding
A business obtains funding from a large number of people who each pay a small amount to the business
Short term sources of finance
Repaid immediately or quite quickly and used for costs such as buying stock or paying utility bill
