Business Finance Flashcards
what are the factors that could affect the most suitable finance option?
- how much £ is needed
- how it needs to last
- what it will be used for
- the cost of repayments
- if the business owner is willing to give up a share of ownership, perhaps through taking on a partner / selling shares
what are internal sources?
money that is generated from within the business or from the business owners own capital
what are external sources?
money that is raised from sources outside of the business
advantages and disadvantages of owners capital? INT
ad: shows owner’s commitment to banks and potential investments, available immediately
dis: can’t use elsewhere, limited amount
advantages and disadvantages of selling assets? INT
ad: making money from something that is no longer used
dis:
advantages and disadvantages of retained profit? INT
ad: no interest, no restrictions on how the money is spent
dis: can cause disagreements between shareholders, only available if the business makes profit
what is an overdraft?
when the business makes payments from their business account which exceeds the money they actually have available
advantages and disadvantages of overdraft? EXT
ad: quick and easy to arrange, business only pays interest when overdrawn
dis: debt can increase rapidly if not paid (assets at risk), difficult to predict the cost of borrowing
what is a bank loan?
a business lends a set amount of money from a bank and is commonly repaid between 1-5 years
advantages and disadvantages of bank loan? EXT
ad: helps cash flow planning, no additional fees
dis: time taken to set up, not guaranteed for all businesses
what is trade credit?
a business sets up an agreement with their supplier to pay for goods and services at a later date
advantages and disadvantages of trade credit? EXT
ad: easy to set up, low cost source, allows them to sell the products, cover costs and make a profit before paying the supplier
dis: can lose good suppliers if payment is not made on time
advantages and disadvantages of share capital? EXT
ad: doesn’t cost the business anything to raise this type of finance, business controls who invests, how much, and how it’s spent
dis: future profits are shared, owners share reduces every time a new investment is received
what is a venture capitalist?
investment into a business in exchange for a share in the businesses equity
(high risk in the investment, high growth potential in the business)
advantages and disadvantages of venture capitalist? EXT
ad: available for businesses which banks have deemed too risky to loan money to
dis: more equity is given away to secure the investment due to increased risk, can take up to 6 months
