2.1 - Raising Finanace Flashcards
Why do we need finance?
- Start up costs
- Running costs
- Dealing with financial problems
- Financial growth and development
- Paying for fixed assets
Internal sources of finance:
- owners capital
- retained profit
- working capital
- selling assets
- loans from family and friends
External sources of finance
Bank loan Overdraft Mortgage Venture capital Factoring Floating on the stock exchange Crowd funding Leasing Grant Trade credit Share capital
Define short term finance
Finances day to day trading of the business
Define long term finance
Finances growth/expansion of the business over many years
Define business plan
A business plan is a plan put together by the owners of a business to help it achieve its objectives.
Define cash
Cash is the money a business has available to it; it’s the money in the till and in the business bank account.
Define cash flow:
Cash flow refers to the movement of cash or money going into and out of a business
Define cash inflow
The money that comes into the business: cash sales, invoices, loans, share capital, owners capital, grant, fixed assets sold
Define cash outflow
The money that leaves the business when pavements are made. Payment to suppliers, paying rent, wages/salaries, fixed asset costs, interest, dividends to shareholders
Without enough cash…
A business cannot survive in the long term no matter how profitable they are
Define insolvent
When a business cannot pay the bills that it has
What is a cash flow forecast?
A document that predicts the flow of cash in and out of a business over a period of time
Benefits of CFF:
- Allows a business to identify when they may have a cash flow shortage
- helps them plan what actions to take to deal with the problem
- helps convince banks to finance the business
Drawbacks of CFF:
- easy to be over optimistic about sales potential
- customers may not pay up on time
- costs may be higher than expected
- don’t cater for major unexpected events
- customer tastes and habits change over time
