2.1 Flashcards
Owners capital
Internal - Invested by business owner often from savings
+ Quick/convenient/no interest
- Many not be enough
Retained profit
Internal - Reinvested profit
+ Easy to access/no interest
- Once it’s been used, it’s gone
Selling assets
Internal - Owned by the business
+ Space for other use
- Full market value?
Leasing
External - Renting out assets
+ Company responsible for repairs
- Aren’t owned by business
Hire purchase
External - Deposit paid, the rest paid in monthly instalments
+ For expensive assets
- Not owned until final payment is made
Government grant
External - Rewarded to business
+ No interest
- Need to meet criteria
Family/friends
External - Loaned or given
+ Low or no interest
- Could cause arguments
Bank loan
External - Borrowed with interest
+ Significant amount at one time
- Interest/difficult to access
Overdraft
External - More than what’s in bank (minus)
+ For emergency
- Short term only
Venture capital
External - Individual/group investing in return for share of profits/business
+ Gain money fast/help and advice
- Give business/profits away
Share issue
External - Sell ordinary shares
+ No interest/quick
- Vulnerable to takeovers
Trade credit
External - Agreement with supplier for payments (buy now pay later)
+ Supplies without immediate payment
- Short term, must be paid back
Limited liability
- Liability of owners is detached from company
- Only assets within the business can be lost
Unlimited liability
- No distinction in law between the individual and the business
- If the business goes under, personal assets can be lost
Business plan
A written outline of every aspect of your business with a focus on your business model and economic viability
Contents:
- Overview
- Objectives
- Market Research
- Employees
- Finance
- Production
Importance:
- Attract investors
- Reduce risk of failure
- Focus and direction
- Creates strategy for growth
- Determines future financial needs
Drawbacks:
- Does not guarantee success
- Must be flexible to adapt to change
- Expectations may cause overspending
Current and non-current liabilities
Current: Amounts that are owed by the business and which are due to be paid within the next twelve months
Non-current: Debts a business owes, but isn’t due to pay for at least 12 months
Incorporated business
A business model in which the business and the owner(s) have separate legal identities
Unincorporated business
A business model in which there is no legal difference between the owner(s) and the business
Insolvency
If the business is unable to pay it’s debts and it’s assets do not cover these
Cash inflows
The flow of money into a business
Cash outflows
The flow of money out of the business
Cash-flow forecast
The prediction of all expected receipts and expenses of a business over a future time period which shows the expected cash balance at the end of each month
Collateral
An asset that might be sold to pay a lender when a loan cannot be repaid
