6. raising finance Flashcards
1
Q
3 internal sources of finance (inside the business)
A
- owners capital
- selling assets
- retained profit
2
Q
internal source of finance - owners capital 1
A
- this is the money the owner invests into a business from personal savings
- sole traders and partnerships use this when starting up bc they dont have much money bc they are small businesses
- easy to access and dont need paying back
- but depends on personal wealth of owner
3
Q
internal source of finance - selling assets 2
A
- businesses can sell assets to generate capital
- only sell spear assets (new or efficient businesses wont have spare stuff)
- wont have to pay interest on these assets - cheap
- but at the end of the day they are losing assets - bad
4
Q
internal source of finance - retained profit 3
A
- profit can be retained and built up over years for later investment
- not all businesses can do this (new/small ones wont have enough profit)
- dont have to pay interest on this - good
- but there might not be enough or investors may want to recive this money as dividens
5
Q
5 external sources of finance (outside the business) pros and cons
A
- family and friends - felixble but may ruin relationship
- banks - legit but hard to get
- business angels - advice and connections but time consuming and loss of % of business
- crown funding - online fundraing for new products etc. raises awareness but posibility of negative publicity
- other businesses - businesses with large retained profit may invest in other businesses. but they may end up having too much control
6
Q
methods of short/medium term finance
A
- overdrafts
- leasing
- grants
- trade credit
7
Q
overdrafts
A
- method of short/medium term finance
- where banks let businesses have negative amount of money in their acc
pros - easy to arrange and flexible
cons - but banks charge high rates of interest on them - unsuitable in the long term
8
Q
leasing
A
- method of short/medium term finance
- if businesses dont have enough money to buy assets they can lease them - paying monthly sums for it
pros - no large up front sum, good quality asset
cons - more costly in the long run
9
Q
grants
A
- method of short/medium-term finance
- fixed sum of money given from government to fund specific projects
pros - no payback, no interest and no sum of business taken
cons - need to apply and include all info, time consuming, strict criteria on how money is spent
10
Q
trade credit
A
- method of short/medium-term finance
- a business buys a good but doesn’t have to pay straight away (90 days later ish)
pros - helps with cashflow
cons - miss out on discounts for paying upfront, if not paid on time then there could be an added fee or interest
11
Q
methods of long term finance
A
- loans
- share capital for limited companies
- venture capital for high-growth potential businesses
12
Q
loans
A
- method of long-term finance
- fixed amount of money is borrowed and paid back over a set period of time
pros - only have to pay back the loan and interest - the loaner wont take any of the business or profits
cons - hard to get - the loaner has to think weather they will get it back or not
13
Q
share capital for limited companies
A
- method of long-term finance
- this is money raised by selling shares of the business
pros - money doesnt have to be repaid/ new shareholders can bring expertise
cons - the owner has to give away a % of their business
14
Q
venture capital for high-growth potential businesses
A
- method of long-term finance
- money for a business that is at high risk (new) but has the potential of being successful
- can be provided by business angels or professionals in venture capital firms
pros - no repay and expertise
cons - loss part of your business
15
Q
unlimited liability
A
- the business and the owners are seen as one under the law
- sole traders and partnerships
- this means any business debts become personal debts of the owners
- so business owners can be forced to sell personal items eg houses to pay off business debts
