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Business paper one > Finance > Flashcards

Finance Flashcards

1
Q

Define sources of finance

A

The options available to a business when seeking to raise funds to support future business actions

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2
Q

What does securing finance mean for a start up

A

Securing enough capital to set up the business

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3
Q

What does securing finance mean for an established business

A

Funding growth or implement a new strategy like relocation

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4
Q

What are the three types of internal sources of finance

A

Owners capital, retained profit and sale of assets

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5
Q

What are the six types of external sources of finance

A

Overdrafts, loans, venture capital, leasing, trade credit and debt factoring

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6
Q

What is owners capital

A

When a entrepreneur invests their own money in a business, how much the owner has invested

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7
Q

What are assets

A

The items owned by the business

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8
Q

What are creditors

A

People who the business owes money to

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9
Q

What are the benefits of owners capital

A

Do not have to repay, no interest, owners maintain control, risking own savings can be motivational, no lengthy processes

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10
Q

What are the disadvantages of owners capital

A

May only be a small amount available, threat to personal finances

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11
Q

What is retained profit

A

Profit kept within a business from the year to help finance future activities

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12
Q

What are the advantages of retained profit

A

Avoid interest, does not dilute ownership

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13
Q

What are the disadvantages of retained profit

A

Need sufficient profit, lowers dividends which frustrates shareholders, reduces security blanket

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14
Q

What are current assets

A

Items owned that will change in value in the short run (stock)

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15
Q

What are fixed assets

A

Assets that stay in the business for more than one year (machinery and vehicles)

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16
Q

What are the advantages of selling assets

A

No interest, turn obsolete assets into finance, immediate lump sum cash injection

17
Q

What are the disadvantages of selling assets

A

Expensive in the long run if you need to lease the asset back, loss of use of the asset and future value, only a one off option

18
Q

What is an overdraft

A

The facility to overspend on a current account up to an agreed sum

19
Q

What are the advantages of an overdraft

A

Only borrowed when required, quick and easy to arrange, no charges for paying it off

20
Q

What are the disadvantages of an overdraft

A

The bank can call it in at any time, only available from a current account, variable interest makes it hard to budget, may be secured against assets

21
Q

What is a loan

A

A set amount of money provided for a specific purpose, to be repaid with interest over a set period of time

22
Q

What are the advantages of loans

A

Quick and easy to secure, fixed interest rate makes budgeting easier, improved cashflow and the borrower retains ownership

23
Q

What are the disadvantages of loans

A

Interest must be paid, can be viewed as a high risk business, must provide security, more expensive, penalty for early payment

24
Q

What is share capital

A

Finance raised from the sale of shares

25
Q

What are the advantages of share capital

A

Only need to pay dividends if a profit is made, possible to raise larger amounts, no interest

26
Q

What are the disadvantages of share capital

A

Loss of ownership, potential risk of hostile takeovers and its a costly and complex process

27
Q

What is venture capital

A

Investment from an established business into another business in return for a percentage equity in the business

28
Q

What are the advantages of venture capital

A

Potential for large sums of money for investment, expertise to help the business, makes it easier to attract other sources of finance and provides capital for expansion

29
Q

What are the disadvantages of venture capital

A

Its a long and complex process, requires expert financial projections, initially expensive with legal and accounting fees, partial loss of ownership, risk of conflict or perceived interference

30
Q

What is leasing

A

Using an asset without buying it outright

31
Q

What is trade credit

A

Paying suppliers a period of time after the goods or services have been received

32
Q

What is debt factoring

A

Selling debt to a business that pays you 80 percent instantly and recovers the rest at a later date, you wont get all of the money back

33
Q

What are the advantages of debt factoring

A

Receive a large amount of the debt instantly, good source of short term finance to address cash flow, reduces risk of bad debt

34
Q

What are the disadvantages of debt factoring

A

Reduces profitability and may damage reputation

Business paper one (38 decks)

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