Business Finance Flashcards
Startup capital
The capital needed by an entrepreneur to start a business
Working capital
Capital needed to pay for day to day costs.
Working capital=Current assets - current liabilities
Why do businesses need finance
-Starting a business
-For day to day costs
-For growth and expansion
-Other special situations
Short term and long term finance
Money required for short periods of time of up to a year
Money required for more than a year
Liquidity
The ability of a business to pay of its short term debts
Bankruptcy
The legal procedure for liquidating a business, which cannot fully pay its debts out of its current assets
Liquidation
When a business ceases trading and its assets are sold to pay suppliers and creditors
Capital expenditure
The purchase of non current assets that are expected to last for more than one year
Revenue expenditure
Spending on all costs and assets other than non current ones, such as salaries, wages and inventory
Internal sources of finance
Raising finance form within the business.
-Retained profit
-Sale of unwanted assets
-Reduction in working capital (Sale of inventory)
-Sale and leaseback of non current assets
External sources of finance
Finance raised from outside the business
Short term external sources of finance
-Bank overdrafts
-Trade credit
-Debt factoring
Long term external sources of finance
-Hire purchase and leasing
-Long term bank loans
-Debentures
-Share capital
-Business mortgages
-Government subsides
-Venture capital
-Micro finance
-Crowd funding
Collateral security
An asset which the business pledges to the lender which must be sold off is loan isn’t paid
2 ways to sell shares to the public
-Obtain a listing on the Alternative Investment Market
-Applying a listing on the stock exchange
-Public issue by prospectus
-Right issue of shares to existing shareholders
