20. Business finance Flashcards
Sources of finance
Internal
External
Internal sources of finance
Personal savings/owners funds
Retained profit
Sale of assets
External sources of finance
Share capital Loans/mortgage Overdraft facilities Hire purchase Grants
Long term finance
Repaid over a long period of time (roughly 5-25 years)
Long term finance sources
Owners own capital/savings Share capital Loans Mortgages Retained profit Leasing Grants
Short term finance
Money that may have to be paid immediately or fairly quickly (1-5 years)
Short term finance sources
Bank overdraft
Cash flow
A business needs sufficient inflows of cash to finance its day-to-day outgoings
Inflows
Money received by the business
Outflows
Refers to money paid out by the business
Inflows examples
Sales revenue
Capital
Loans
Grants
Outflows examples
Purchases
Rent & rates
Wages & salaries
Owners capital (funds)
Owner uses their savings and puts money into business
A sole trader will usually start up a business with their own savings
Share capital
A share in the business is sold to an individual or another business
Venture capitalist
A person or company who buys shares in a business that they hope will grow fast
e.g. Dragons Den
Bank loan
Amount of money is borrowed from the bank, then repaid (with interest) over a set period of time (1 to 10 years)
Mortgage
Long term loan provided by a bank in order to buy property
Retained profits
Money is kept in the business by the owners
Leasing
Businesses rent equipment from other companies rather than buying them
Government grants
Money given to the business by the government and EU (possibly to help start up)
Bank overdraft
The bank allows the business to draw more money from their bank account than they actually have in it
Trade credit
When a supplier allows you a period of time (e.g. 30 days) to pay for goods and services
Factoring
A business is able to receive cash immediately for the invoices it has issued from a factor (e.g. bank) instead of waiting 30 days to be paid
