2.1 raising finance Flashcards
WhaT are fixed cosTs?
Costs that stay the same
whaT are variable cosTs?
CosTs ThaT chanGe
Why does a business need finance ?
give 5 reasons.
-fundinG
-research+developmenT
-maRkETInG
-POSITIvE CAsHfLOW
-pay fIxEd + variable COsTs
WHaT Is ThE dEfInITIOn Of InTERnal finance?
FINANCE GAINED FROM MONEY WITHIN A BUSINESS
WHAT Is ExTERnaL fInanCE?
FinanCE GAINED FROM OUTSIDE OF A BUSINESS
Give examples of internal finance
-reTaIned pROfiTs
-sellinG asseTs
-OWNER FUNDS
GIvE EXAMPLES OF ExTERnAL FINANCE (8/13)
- government grant
- leasing
-crowd funding
-peer 2 peer funding
-family and friend funding - venture capital
-share capital
-overdraft - trade credit
-business angel
-loans
TRADE CREDIT DEFINITION
A SHORT FREE_TERM SOURCE OF FInanCE if the suppLIER Is WILlInG TO sUpply Goods noW and be paid laTer
shaRE CapITal definition
IvESTmEnT GIvInG SHAREhOldERs pART-OWnERSHIp in The business in exchanGe for dividends
overdraft definiTon
sellinG a minimum level of a bank baLanCe bElOW zERO
VENTURE CApITAL DEFINTION
THE INVESTMENT OF AN ESTABLISHEd BUSINESS TOWARDS ANOTHER ESTABLISHED BUSINESS
OWNERS CAPITAL DEFiNTION
THE PERSONAL FUNDS OF THE OWNER< WHICH MAY BE USED TO INVEST IN THE BUSINESS
CASH FLOW DEFINITION
The movement of cash in and out of a businesses bank account
Liability definition
A debt that needs to be paid
Limited liability definition
When the owners are shielded from liability due to a failure of a business. The owners are safe.
What is a business plan
A document created by a business or entrepreneur that provides details about each element of the business
Retained assets definition
Profit Money accumulated by a business over many years
Sale of assets definition
Example.
Identifying and disposing of assets that the business can do without
The business selling old machinery they no longer use
Leasing definition
Obtaining the use of an asset such as a property or van without paying cash, like a long term rental
E.g leasing a house
Government grant definition
A gift of finance from the government often used to help first time entrepreneurs
Business angel definition
A wealthy individual making a personal investment into a business
Loan definition (fixed)
The giving of a fixed amount of money for a fixed term with regular fixed repayments
Crowd funding
The raising or money by a large group of people to finance a business, each person often only gives a small sum of money
Family and friend funding defintion
The donation of money towards your business from a family member or friend
Peer to peer funding definition
The practice of an individual lending to other individuals money with whom there is no relationship or contact
Funding definition
The act of contributing money or resources towards a business
family and friend funding (+/-)
+ repayment terms and conditions may be flexible
- amount of money giving may be limited
Business angels (+/-)
+ may offer support and expertise
- high risk
Peer 2 peer funding (+/-)
+ no relationship or contact is needed, all lending is done online
- the lender may not receive profit if the business fails
Share capital(+/-)
+ no repayment required
- complex and costly process
Trade credit (+/-)
+ improves cash flow
- high interest rates
Grant (+/-)
+ no repayments required
- highly competitive
Loan (+/-)
+ improves cash flow
- interest must be payed regardless of financial performance
Venture capital (+/-)
+ attracts other sources of finance
- long and complex process
Overdraft (+/-)
+ only pay for money borrowed
- the bank can call in the money at any time
Leasing (+/-)
+ easy to arrange
- interest may very when late
