Finance Flashcards
Sources of finance for businesses
Own equity Bank loans Mortgage Bank overdraft Government grants Taking on additional partners Selling shares Venture capitalists and business Ángels Retained profit
Own equity
Where a business gets its owners/shareholders to invest more money into a business.
Mortgage
Where a bank will give you a sum of money to pay off a property which you will pay back in monthly installations for 25 years
Bank loans
Where a bank gives you a sum of money that you have to pay off in monthly installations with interest (long term)
Bank overdraft
A short term source of finance where you are allowed to use slightly more money than you have (with a limit).
Government grants
Where the government gives a business and useful sum of money on the basis that they complete some criteria.
Taking on an additional partner
Where a business (usually a sole trader or partnership) allows another person to join the firm and invest money in the business so that you get extra funding and their specialist help.
Venture capital and angel investors
People or other businesses which buy shares in your business because they think it will be successful, also gain expertise because the investors tend to know what they are doing.
Retained profits
Re investing and spending money that the business has already made rather than rewarding owners to grow the business
Cash budget
A document created on a spreadsheet to ensure that the business won’t come into any cash flow issues in the future.
Methods of fixing problems with cash flow.
Leasing and hire purchase expensive assets
Use sources of finance to keep business stable
Raising additional funding through own equity and venture capital
Selling unnecessary assets
Reduce expenditures through decreasing electricity and wages.
Decreasing raw materials because sales are decreasing and you don’t need that amount of stock any more.
Technology in finance
Spreadsheets Online banking EPOS Pay Pal Email
Spreadsheets
Can be used to calculate totals quickly and store informations safely
Use what if statements to instantly carry out difficult and complicated financial operations
Can transfer info easily into graphs and charts to make info easier to read.
Faster than using paper.
Online banking
Is used to quickly make transactions between your bank and the business and automatically pay suppliers when they need the money
Also helps with the monitor of cash flow.
Pay pal
Can be used to quickly collect customer payments and increases the speed of cash flow.
EPOS
Allows the business to quickly and automatically register the income from sales.
Parts of a cash budget
Opening balance Total receipts Total cash available Total payments Closing Balance
Opening balance
The total amount of cash the business is predicted to have at the start of a month
Total receipts
All the revenue expected to be generated from selling products. And other sources of finance.
Total cash available
The opening balance plus the total receipts expected, this is all the income expected for that month.
Total cash available
The opening balance plus the total receipts expected, this is all the income expected for that month.
Total payments
This is the total expenditure of money expected for that month
Closing balance
The total cash available minus the total payments, the cash total expected to be left at the end of the month.
Reasons for using a cash budget
To predict how much cash the business will have to spend
To predict if the business will have a surplus and be able to grow
To be able to predict if the business will have a deficit and will need a source of finance in place.
Deficit definition
A deficit is a negative amount of money in a business
Surplus definition
Where there is an excess of money in the business meaning that the business can make a profit or reinvest in the business
Income statement definition
A document created to show whether a business is making a profit or a loss.
Reasons to make an income statement
Legal reasons
To find out how much revenue they are getting from sales
To calculate expenses
To find out how much profit is being made by the business
To calculate the cost of sales
To compare with other years
Parts of an income statement
Sales Less: cost of sales Gross profit Total expenses Profit for the year
Total sales income statement definition
The total revenue generated by the selling of products to customers
Less cost of sales: income statements
The total cost of purchasing materials for the product.
Gross profit income statements
The total sales revenue minus the less cost of sales
Total expenses income statements
The costs of overheads in the business
Profits for the year income statements
The gross profit minus the expenses. Any money or capital left at the end of the year which is split between the owners depending on how much of the business they own.
Acronym for income statements
S L O C G E T P
Cash budget acronym
O R T P T C
