2.1 Flashcards
Definition of Owner’s Capital
Internal finance sourced from owners personal savings
Definition of Retained Profit
Profit that has been generated in previous years is reinvested back into the business
Internal Finance
Definition of Sale of Assets
Selling assets that are no longer required (machinery, land, buildings) to generate internal finance
3 Advantages of Internal Finance
-Often Free
-No Third Party
-Organised Quickly
3 Disadvantages of Internal Finance
-Opportunity Cost
-May not be sufficient
-Rarely tax efficient
6 Sources of External Finance
-Family / Friends
-Banks
-Peer to peer funding
-Business Angels
-Crowd Funding
-Other Businesses
Definition of Unlimited Liability
Owners are fully responsible for any debts owed by the business
7 Sources of External Finance
-Loans
-Share capital
-Venture capital
-Overdrafts
-Leasing
-Trade credit
-Grants
Definition of Limited Liability
Owners are responsible for the original amount invested into the business
5 Sources of Finance for Limited Liability
-Retained Profit
-Share Capital
-Debentures
-Venture Capitalist
-Business Angels
10 Sources of Finance for Unlimited Liability
2 Internal
3 Bank
2 Suppliers
2 Investors
1 External
-Retained Profit
-Owners Capital
-Unsecured Loan
-Overdraft
-Mortgage
-Trade Credit
-Leasing
-Peer to peer lending
-Crowd Funding
-Grants
Definition of a Business Plan
A document that is produced by the owner at start up to set out objectives and strategies to achieve them
3 ways a business plan is relevant to obtaining finance
-Shows research has been carried out
-Reduces risk of failure
-Shows potential problems and chance of success
How to calculate net cash flow
Total Inflow - Total Outflow
How to calculate opening balance
Carry forward last months closing balance
