2.1 Raising Finance Flashcards
What is trade credit
Refers to the amounts owned to suppliers for goods supplies on credit in which have not been paid for.
What is a bank loan
Is a fixed amount for a fixed term with regular fixed repayments. The interest on a loan tends to be lower than an overdraft
Define venture capital
Is finance provided by investors to start up firms and small business with perceived long term growth potential
What is an bank overdraft
Is a limit on borrowing on a bank current account with an overdraft the amount of borrowing may vary on a daily basis
What is a debenture
Is a form of bond or long term which is issued by the company. The debenture typically carries a fixed rate of interest over the course of the loan.
What is crowd funding
Is the practice of funding a project by raising finance by a large amount/number of people usually online
What is debt factoring
Business sells its outstanding customer accounts (those who have no paid their debts to the business) to a debt factoring company. The company pays the business and then collects the full amount of the debts once it has done this it will pay the remaining amount to the business less a charge
What is cash flow
The total amount of money being transferred in and out of the business over a period of time
What is the formula for net cash flow
Inflows-outflows
What is closing balance also known as ?
Cumulative cash
What is the formula for closing balance ?
Opening balance - net cash flown
Why create a cash flow forecast
- if cash flow runs out, business will more certainly fail
- many have unlimited cash flow meaning it can help manage cash
- being able to identify short falls in advance-business will see problems before they happen
- external stakeholders e.g. Banks require sales forecasting
- being able to make sure you pay suppliers and the employees
Why are start ups vulnerable to cash flow problems
- suppliers may demand earlier payments
- up front expenses
- business will not have retained profits
How to solve cash flow problems
- ask customers to pay sooner
- chase debts promptly
- asked for extended length to repay and credit from suppliers
- order less stock but more often
- bank overdraft
Why are business plans important
- helps the owner to analyse the progress of the business against the plan
- important document for discussion with investors and lenders of finance
- set out the stages in achievement of the business objectives
- starts ups reply on the business for guidance for the first couple of months
