2.1 Raising Finance Flashcards
What is Capital expenditure?
Spending on fixed assets such as equipment.
What is Revenue expenditure?
Spending on raw materials.
What are some examples of internal finance?
Owners capital, retained profit, sale of assets
What is opportunity cost?
Opportunity cost is the cost of the next best option forgone.
What is a sale and leaseback arrangement?
An arrangement made to sell an asset but the business can still use it. Done if cash is needed.
What are the benefits on internal finance?
Nor third parties involved, Often free, Businesses that aren’t able to get loans can access capital.
What are the drawbacks of internal finance?
Significant opportunity cost, may not be a sufficient amount, rarely as tax efficient.
What is working capital?
Working capital is money used in the day to day management of the business.
What is external finance?
Finance sources from outside the business.
What are some examples of external finance?
Family and friends, Peer to Peer lending, Banks, Crowdfunding, Business angles, Other businesses.
What are the pros and cons of banks for external finance?
+short term and long term loans
+free advice
+small sums from unsecured (no collateral involved)
-Need business plan for the loan
-Must be a customer of the bank
-Have to pay interest
-Have to provide security for large amounts
What are the pros and cons of Peer to peer lending?
+Money can be pooled with others
-Charged a small fee
-Have to pay interest
What are the pros and cons of Family and friends?
+Cheap
+Flexible
-Relationships could be damaged
What are the pros and cons of Business angles?
+They are more willing to take risks
-Finding the right one is very hard
-They may be involved in decision making - loss of power
What are the pros and cons of Crowdfunding?
+Large number of small investors
-Have to have a persuasive business plan
-Lots of competition for the investors
