2.1 Raising Finance Flashcards
What is owners capital?
Money that comes from the owners pocket end not the business
What is retained profit?
Profit kept from previous years
What is sale of assets?
Selling business or own property in order to make money
What is internal finance?
Money from within the business
What is external finance?
Money from outside the business
What are the sources of external finance?
- Family and friends
- banks
- Peer to peer funding
- business angels
- crowd funding
- other businesses
What is a loan?
Money borrowed from the bank
What is share capital?
Money gained from selling shares
What is venture capital?
Money gained from a professional investor
What is an overdraft?
When you take more money out then you have (allows you to go into temporary debt)
What is leasing?
Renting
What is trade credit?
Buy now pay later
What are grants?
Money issued by the government (free money)
What is limited liability?
Only liable for their original investment should the business fall into debt
What is unlimited liability?
Owner is liable for all debts in the business and may need to pay back with own assets
What are the sources of finance available for limited L?
- retained profit
- sale of assets
- ordinary and preference share issues
- grants
- venture capital
What are the sources of finance available for unlimited L?
- loans
- Business angels
- credit card
- crowd funding
- trade credit
- savings
- overdraft
What are the components of a business plan?
- Cash flow forecast
- 4ps of marketing
- HR
- production costs
- location
What is the purpose of a business plan?
- Help set up a new business
- help the business raise finance
- help the business set objectives
- outline business functions and organisation
What does SMART stand for?
Specific
Measurable
Achievable
Realistic
Time bound
What are the uses of cash flow?
- Compare predictions to actual events
- shows owner where likely surplus and shortfalls are
- secures a better deal for finance
- allows the owner to arrange suitable sources of finance
What are limitations of cash flow?
- very short term to make concrete decisions
- only an estimate
- owner may have overstated or understated income or expenditure
- Not about profit only cash
- would need to come along with other income statements or financial positions
Why should a business use a business plan?
- Attract potential investors
- give owners direction
- persuade lenders that business will make enough profit to pay them back
- identify problems
- set targets.
what are ways to increase inflows?
- Arrange a source of finance
- Increase or decrease selling price
- Promotion
- Sell assets
- Apply pricing strategies, such as discounts
