2.1.1 Flashcards
what is working capital
the capital of the business used in its day to day operations,calculated as the current asset - current liabilities
what is sources of finance
sources of finance are the options available when seeking to raise funds for your future business actions
what is internal sources
with examples
sources within a business eg:sale of assets,better working capital,retained profits
what is external sources
with examples
sources outside a business eg:friends&family,bank loan,bank overdraft,business angels,loans and grants
what is personal sources with examples
when an entrepreneur invests their own money in a business e.g from personal savings
what is owner’s capital
3 examples
how much the owner has invested in the business
eg:inheritances,personal credit cards,re-morgaging
what is owner’s capital
3 examples
how much the owner has invested in the business
eg:inheritances,personal credit cards,re-morgaging
3 advantages of personal sources
- profits stay in business control
- the only option possible
- cheaper than other resorces
3 disadvantages of personal sources
- opportunity cost
- lose everything
- cause family tensions
what is retained profits
profit kept within a business from profit for future activites
advantages of retained profits
- cheap
- very flexible
- management control over investment
disadvantages of retained profits
- only option if sufficient retained profits exist with in a business
- cause shareholder dissatisfaction if this expense of dividend payments
- reduces the security blanket of keeping retained profits for unseen situations
advantages of sale of assets
- no interest charges
- may be turning an obsolete asset into finance
- immediate lump sum cash injection
disadvantages of sale of assets
- only a one off option
- loss of use of the asset and future value
- expensive in the long run
