2.1-Raising Finance Flashcards
What is internal finance?
Money generated from within the business e.g retained profit, owner funds
What is external finance?
Money from outisde of the business e.g loans ,shares, venture capitalist
Why do businesses need finance?
Start up
Expansion
Marketing
Day to day costs
Innovation
Market research
What are current assets?
Are items owned that will change in value in the short run.(within a year)
e.g cash, inventory
What are Non-current assets?
Will stay in the business for more than a year e.g buildings, equipment, furniture.
What are the three types of internal finance?
1.Owners capital
2.Retained profit
3.Sale of assets
What is owners capital?
When an entrepreneur invest their own money into the business
What is retained profit?
The profit that remains after tax and dividends have been paid.
What is sale of assets?
If a business or its owner have any assets they may sell them to increase funds for investment.
List as many external methods of finance as you can.
Family and friends
Banks
Peer to peer funding
Business angels
Crowd funding
other businesses
Loans
Mortgage
Overdraft
Share Capital
Venture Capital
Leasing
Trade Credit
Grant
What is peer to peer funding?
Allows savers to lend money direct to individuals or small business via specialist website
What is a business angel?
High net worth individuals who invest directly or via networks and syndicates.
What is share capital?
Business may sell some of its shares in return for money.
What is venture capital?
Investment from an experienced entrepreneur in return for a stake in the business.
What is Trade Credit?
Delays the pay for goods and services.
What 6 factors businesses need to consider when choosing finance?
Legal structure
Use of the finance
Amount required
Future Profit levels
Level of risk
Views of owners
What is a business plan?
A document setting out the business idea and showing how it is going to be financed, marketed and put into practise.
What are the two main reasons for a business plan?
1.Persuade lenders to invest into the business.
2.Helping to clarify objectives and identify what needs to be done to meet them.
What are the contents of a business plan?
Nature of the business
The market
Objectives
Marketing plan
Operational plan
Financial plan
What is cash flow?
Cash flow is the amount of money flowing in and out of a business over a period of time.
What is the formula for Cash inflows?
Cash income from sales + other sources of cash
What is the formula for cash outflows?
Raw materials+ wages+ rent+ other items of cash spending
What is the formula for net cash flow?
Cash inflows - cash outflows (for that time period)
What is an opening balance?
Firms cash holding at the beginning of the time period
