5.1 Business finance: needs and sources Flashcards
What is finance in business?
Money needed to meet business expenses.
What is capital?
Money used to start or run a business.
Why do businesses need capital?
To start up, expand, and for working capital.
What is capital expenditure?
Money spent on non-current assets.
What is revenue expenditure?
Money spent on daily expenses.
What is an internal source of finance?
Finance from inside the business.
Give 3 examples of internal sources.
Retained profits, sale of assets, owner’s savings.
What is retained profit?
Profit kept in the business after costs.
What is a disadvantage of retained profit?
New or small firms may have none.
What is the sale of existing assets?
Selling things the business no longer needs.
What is a problem with selling assets?
It can take time and may sell for less.
What are owner’s savings?
Money the owner uses from their own savings.
What is a risk of using owner’s savings?
The owner may lose it if the business fails.
What is an external source of finance?
Finance from outside the business.
Give 3 examples of external sources.
Bank loans, issue of shares, debt factoring.
What is issuing shares?
Selling ownership of the business for money.
What is a risk of issuing shares?
Losing some control of the business.
What is a bank loan?
Borrowed money repaid with interest.
What is debt factoring?
Selling unpaid invoices for quick cash.
What is a grant or subsidy?
Money given that doesn’t need to be repaid.
What is microfinance?
Small loans to people who can’t get bank loans.
What is crowdfunding?
Raising small amounts from many people online.
What is short-term finance?
Finance needed for less than one year.
What is long-term finance?
Finance needed for more than one year.
