2.1 Flashcards
sources of finance
owners capital
the amount of money and resources an owner invests into their business for it to succeed
retained profit
money kept from profit that will be re-invested into the business
sale of assets
the company sells its own belongings to raise funds
creditor
lends money
debtor
owes money
capacity utilisation
decreases the cost per head
sources of finance vs method of finance
sources = where the currency comes form
method = what the currency is used for
friends and family (source of finance)
Ltd companies can sell shares to F&F to raise funds
A = may not need to be repaid
D = can cause arguments
Banks (source of finance)
provides overdrafts or loans
A = can provide large amounts of money
D = need to be repaid with interest
Peer to peer funding (sources of finance)
allows institutions to lend money to small businesses
A = quick decisions made about funding
D = need to pay additional fees ontop of interest
Business Angels (sources of finance)
‘angel’ investors offer their own disposable income and take shares in return for financing the business
A = doesn’t need repayments and the angel brings experience and knowledge
D = takes longer to find an angel investor
Crowd Funding (sources of finance)
large amounts of people make small investments online to fund a project
A = no loan interest costs, don’t need a credit score
D = potential scammers, lots of work
Other businesses (sources of finance)
other businesses invest in start-ups
A = high return on investment
D = loss of investments
overdrafts (methods of finance)
going past 0 balance
A = quick fix to cash problems
D = affects credit score, will be charged if you exceed the overdraft
leasing (methods of finance)
paying per month to use equipment but not buying it
A = lower monthly costs than a loan
D = may pay more to lease than to buy
trade credit (methods of finance)
owning the product with a 30/60/90 day period to pay the supplier
A = allows businesses to make a profit before paying
D = trade credit isn’t always available
grant (method of finance)
payment given by the government which doesnt need to be paid back
A = keep control of the business
D = only use it for specific reasons
limited liability
the owner can only lose how much they invested (protection of personal savings, the owner and the business are separate)
unlimited liability
the owner must pay off the businesses debts even if it comes out of their savings
debt factoring
when a business sells its account’s receivables to a 3rd party at a discount
SMART goals in a business plan
Specific, Measurable, Agreed, Realistic, Timed
whats in a business plan?
cash flow forecast, hows liquidity, production cost & suppliers, how the business is financed
what is a cash flow forecast
day-to-day running of a business budget and shows where a business will have a short flow of cash
