2.1.1 Internal Finance ๐ธ Flashcards
What is finance ?
The management of investment needed to run, open and expand a business
What are the reasons for having finance ?
To expand
To maintain
To start up
To buy stock
To help the business over a slow trading time - seasonal demand
Why is debt good ??
It secures borrowing for your business
What is insolvency?
Inability to pay debt
Why do businesses fail?
Lack of cash flow
What are the 3 sources of internal finance ?
Owners capital - personal savings - owners equity
Sales of asset
Retained profit
Whatโs another word for personal savings ?
Owners equity
What are the pros of personal savings
No interest
Have 100% control
What are the cons of personal savings ?
๏ฟผ uncertainty of the amount needed - might become undercapitalised
Opportunity cost
Can only be used once
Not subject to credit checks- Easier for new PLCs to get finance๏ฟผ๏ฟผ
What are sales of assets ?
Selling something the business owns
What is personal savings
Money from owners personal account invested into the business
How are sales of assets listed ?
In liquidity- how easy it is to sell
What needs to be considered in sales of assets ?
Time frame and liquidity
What is liquidity?
How easy it is the sell something
What are the cons of sales of assets ?
Less assets on balance sheet - looks less attractive to investors
Value of asset deprecated- so you make less
What are the pros of sales of assets ?
Assets have high liquidity- can raise cash fast if your business is not new
Free up trapped money
No need for third party - quicker to obtain money
What is sale and leaseback?
When a business sales an asset to a business , but they have a lease in it so it stays with the previous business and can be accessed with a small fee to generate capital
What is retained profit ?
Is profit after tax that is put back into the business and not return to owners๏ฟผ
What happens if a limited company is using retained profit?๏ฟผ
Company may lead to conflict if shareholders see that dividend payments have not been paid because directors have been using the profit in the business๏ฟผ
What is a positive retained profit?๏ฟผ
itโs flexible๏ฟผThey have to be you straight away and can be saved and accumulated๏ฟผ
What are the two things that expenditure fall under?๏ฟผ
Capital expenditure - Capital expenditure spending on items that may be used ever again๏ฟผ
or revenue expenditure- Revenue needed to maintain and repair buildings and machines๏ฟผ๏ฟผ
What are economic variables ?
Features of the economy which has affect on the business and consumers ๏ฟผ
What is internal finance ? ๏ฟผ
The raising of capital from within or inside of the business๏ฟผ
What is personal savings?๏ฟผ
Source of personal finance provided by owner ๏ฟผ
What is ๏ฟผretained profit ?
Profit that is reinvested into the business and not paid as dividends
