2.1 Raising Finance Flashcards
What are three sources of internal finance?
Owner’s capital/personal savings
Retained profit
Sale of assets
What are six sources of external finance?
Family and friends
Banks
Peer-to-peer funding
Business angels
Crowdfunding
Other business
What is a business angel?
An investor who invests in the early stages of a business usually with a significant equity stake.
What are some methods of raising external finance?
Share capital
Venture capital
Overdrafts
Leasing
Grants
Trade credit
Loans
What are the advantages of retained profit as a source of finance?
No interest
Does not have to be repaid
No dilution of shares
What are the disadvantages of retained profit as a source of finance?
Shareholders may have reduced dividends
What are the advantages of sale of assets as a source of finance?
No interest
Does not have to be repaid
No dilution of shares
What are the disadvantages of sale of assets as a source of finance?
Once sold, gone forever
What are the advantages of share capital as a source of finance?
No interest
Does not have to be repaid
What are the disadvantages of share capital as a source of finance?
Dilution might upset existing shareholders
What are the advantages of loans as a source of finance?
No dilution of shares
What are the disadvantages of loans as a source of finance?
Interest payments
Set maturity date
What are the advantages of overdraft as a source of finance?
Quick and easy to set up and very flexible
Interest paid only on amount overdrawn
What are the disadvantages of overdraft as a source of finance?
Interest payments higher than for a loan
What are the advantages of leasing as a source of finance?
Improve cash flows
Regular fixed payments provide certainty
What are the disadvantages of leasing as a source of finance?
Expensive
Can be a long-term commitment
What are the advantages of trade credit as a source of finance?
Eases cash flow
What are the disadvantages of trade credit as a source of finance?
If late paying, can damage credit history
What is liability?
The responsibility of the owners of a business for the debt and finance of that business.
What type of business has unlimited liability?
Unincorporated businesses
-Sole traders
-Partnerships
What type of business has limited liability?
Incorporated businesses
-Private limited
-Public limited
What type of finance is available to an unincorporated business?
Owners capital
Loans and overdraft
Trade credit
Leasing
What type of finance is available to an incorporated business?
Share capital
Loans and overdrafts
Angel and venture capital
Trade credit
Leasing
Crowdfunding
What are four benefits of business plans?
Considers potential problems
Provides sense of direction
Provides clear targets
Can be used to judge success
What is a cash-flow forecast?
Shows movement of money into and out of a business over a period of time
What figures does a cash-flow forecast show?
Opening balance
Cash inflow
Cash outflow
Monthly balance
Closing balance
What are the uses of cash-flow forecasts?
Early identification of problems
Identification of and chasing slow-paying customers
Control of stock
Target setting and motivation for those involved
What are some limitations of cash-flow forecasts?
Depends on the accuracy of the figures
May limit flexibility
