2.1 Raising Finance Flashcards
What are the 3 internal sources of finance??
- Owner’s capital
- Selling assets
- Retained profits
What are 2 negatives of selling assets??
- Time consuming
- Loss of assets
What are 2 negatives of retained profits??
- Shareholders may want dividends
- Often not enough
What are the 6 sources of external finance??
- Family & Friends
- Banks
- Peer-to-peer lenders (P2P)
- Business Angels
- Crowdfunding
- Other businesses
What are the positives of using family & friends and banks as sources of finance??
F&F: Flexible repayment
Banks: Recognised financial institutions, clear terms & conditions
What is the downside of using banks as sources of finance??
It’s hard to be approved
What are Peer-to-peer lenders??
Lender states how much they want to give and their interest rate and Borrower states how much they want and proposes their business idea and the company matches them
What are 3 negatives of using business angels as sources of finance??
- Difficult
- Time-consuming
- Diluted ownership
What are 2 negatives of using Crowdfunding as a source of finance??
- Risk of copying
- Failure has high awareness
What does using other businesses as a source of finance mean??
Businesses may invest in their supplier or want to have some ownership of other businesses by investing
What are the 4 short-term Methods of finance??
- Overdrafts
- Leasing
- Grants
- Trade Credit
What’s a negative of using overdrafts as a method of finance??
High interest rates
What’s leasing??
Paying to use another film’s asset
What are the positives and negatives of leasing??
+ No large up-front sum
+ Maintenance costs often included
- More costly in long-term than buying new asset
What’s a grant??
Fixed sum of money given by government
What are the 2 negatives of grants??
- Long application process
- Strict on what they’re spent on
What are the 2 negatives of trade credit??
- Miss out on discounts of paying up-front
- Unable to pay on time = bad credit
What are the 3 long-term methods of finance??
- Loans
- Share capital
- Venture capital
What are 2 positives of share capital??
- Added expertise
- No repayment
What’s 3 positives of venture capital??
- Usually large sum of money
- No repayment
- Expertise
What are the 3 uses of cashflow forecasts??
- Identify shortages in cash (to fix them)
- Compare forecast to financial objectives
- Helps get loans
What are 3 limitations of cashflow forecasts??
- Bias (may overestimate or underestimate to convince investors)
- Only a prediction (Can’t consider unforeseen events)
- Time-consuming
What are the 3 main methods of sales forecasting??
- Extrapolation
- Confidence intervals
- Correlation
What’s extrapolation??
Uses trends established from historical data to forecast the future
What are the 3 uses of sales forecasts??
- Finance (cashflow forecasts)
- Marketing (might need to be changed if sales decrease)
- Resources (more sales = more resources)
What are the 3 factors affecting sales forecasts??
- Consumer trends
- Economic variables
- Actions of competitors
What does a moving average do?
Takes a data series and ‘smoothes’ the fluctuations in data to show an average.
Aim is to take the extremes of data from period to period
What are the 3 benefits and 3 drawbacks of extrapolations??
Benefits:
- Simple method
- Not much data required
- Quick & Cheap
Drawbacks:
- Can be unreliable or biased
- Assumes past trends will continue
- Ignores qualitative data
What’s correlation??
The relationship between 2 variables. Can be positive, negative or non-existent
What are confidence intervals & levels??
Gives % probability that an estimated range of possible values in fact includes the actual value being estimated
What are 3 potential circumstances where sales forecasts are likely to be inaccurate??
- Business is new
- Fashion market
- Significant changes in market share (new entrants)
