business unit 3 Flashcards
internal sources of finance
- Personal funds (for sole traders)
- Retained profit
- Sale of assets
external sources of finance
- Share capital
- Loan capital
- Overdrafts
- Trade credit
- Crowdfunding
- Leasing
- Microfinance providers
- Business angels
short term sources of finance
Personal savings
Sale of assets
Overdrafts
Trade credit
long term sources of finance
Share capital
Loan capital, such as mortgages
Leasing
Business angels
Microfinance providers
Crowdfunding
Business angels meaning
Wealthy and successful private individuals who risk their own money in a business venture that has high growth potential.
Crowdfunding meaning
Rising finance for a business venture or project by getting small amounts of money from a large number of people, usually through online platforms.
External sources of finance meaning
Finance that comes from outside the organization, usually with the help of a third-party provider, such as a bank, business angel, venture capitalist or government.
Initial public offering (IPO)
Finance raised by a public limited company when it issues (sells) shares for the very first time on a stock exchange.
Internal sources of finance
Finance that come from within the organization, from its own resources and assets without the help of a third-party provider.
Leasing meaning
This financial service enables businesses to have access to non-current assets, by hiring these assets, but without the high costs of capital expenditure.
Loan capital meaning
Also known as debt capital, this refers to borrowed funds from financial lenders, such as commercial banks.
Long-term finance meaning
Refers to sources of finance of more than five years, for the purchase of long-term fixed assets or to fund the growth of a business in overseas markets.
Microfinance meaning
An external source of finance provided by financier who support entrepreneurs of small businesses, especially females and those on low incomes who are ordinarily unable to secure loans from commercial banks.
Overdraft meaning
A banking service that enables customers (personal and business customers) to withdraw more money from their account than exists in the account.
Microfinance providers meaning
Refers to the financiers or organizations that lend small amounts of money to entrepreneurs of small businesses, especially females and business owners on very low incomes.
Personal funds meaning
Internal source of finance, with entrepreneurs using their own savings, usually to finance their start-up business.
Retained profit meaning
This is the surplus funds that are reinvested back in the business, rather than being distributed to the owners.
Revenue expenditure meaning
Refers to business spending on its everyday and regular operations, e.g. spending on wages, raw materials and bills.
Sale and leaseback meaning
This is a hybrid financial strategy that involves a business divesting its tangible non-current assets and subsequently entering into a lease agreement to regain access to and use of these assets.
Sale of assets meaning
An internal source of finance that involves the firm selling existing items of value that it owns.
Share capital
Also known as equity capital, this is finance raised through the issuing of shares via a stock exchange (or stock market).
Share issue
The process involving a public limited company selling additional shares in order to raise finance.
Short-term finance meaning
Refers to sources of finance needed for the day-to-day running of the business, i.e., revenue expenditure.
Stock exchange meaning
A highly regulated marketplace where individuals and businesses can buy and sell shares in public limited companies.
Trade credit meaning
Financial service that enables a business customer to purchase and obtain goods and services but to pay for these at a later date.
Capital expenditure
Refers to business spending on fixed assets or capital equipment of a business.
Finance
Refers to the various available money that an organization has to fund its business activities.
Revenue expenditure
Refers to business spending on its everyday and regular operations.
Average costs
This is the cost per unit of output. It is calculated by the formula: AC = TC ÷ Q where:
AC = Average cost
TC = Total cost, and
Q = Quantity of output
Average revenue
This is the amount a business receives from its customers per unit of a good or service sold. Mathematically, AR = TR ÷ Q = P where:
AR = Average revenue
TR = Total revenue
Q = Quantity of output, and
P = Price
Costs
The charges that an organization incurs from its operations, e.g., rent, wages, salaries, and insurance.
Direct costs
Costs that are clearly associated with the output or sale of a certain good, service or business operation, e.g., raw materials.
Fixed costs
Costs that do not change with the level of output, e.g., loan repayments and management salaries.
Indirect costs
Also known as overhead costs, these costs are not easily identifiable with the sale or output of a specific good, service or business operation.
Price
Also known as average revenue, this is the amount of money a product is sold for.
Revenue
The money (income) received by a business from the sale of goods and/or services.
Revenue stream
The different sources of revenue (or income) for a business, e.g., revenue from sponsorship deals, merchandise sales, membership fees and royalties.
Total costs
This refers to the aggregate amount of money spent on the output of a business. The formula is: TC = TFC + TVC where:
TC = Total costs
TFC = Total fixed cost, and
TVC = Total variable cost.
Total revenue
This is the sum of income received by a business from its trading activities. It is calculated using the formula: TR = P × Q.
Variable costs
Costs that change with the level of output - they rise when output or sales increase, e.g., raw materials and packaging costs.
Assets
The possessions owned by a business, which have a monetary value, e.g., buildings, land, machinery, equipment, inventories, and cash.
