Finance Flashcards
What are internal sources of finance ?
Internal sources of finance -money that comes from inside the business. new research businesses are founder finance retained profit and friends and family
What are external sources of finance ?
Finance that comes from outside the business eg bank loans
What is the difference between long and short term finance ?
Long term finances finances for over a year and sober term finances for less than a year and can be used to pay day to day bills
Define retained profit
Profit that has been made by the business in previous years that is then reinvested into the business
Advantages of retained profit
Cheap
Cost of retained profits is the opportunity cost for shareholders of leading profits in the business
Very flexible -management control how they are reinvested
Shareholders control the proportion retained
Doesn’t dilute ownership
Disadvantages of retained profit
Danger of hoarding cash
Shareholders may prefer dividends of the business is not achieving sufficiently high returns on investment
High profits and cash flows would suggest the business could afford debt
May not have enough retained profit
Define sales of assets
When you transfer or sell assets of your company ,rather than shares or stock
Advantages of sales of assets
Can select what assets and liability to acquire in the deal
Avoid future liability
Disadvantages of sales of assets
You may not have enough assets to sell to raise the amount you need
Can put you in a difficult financial decision
Define trade credit
a type of short-term financing offered by suppliers or distributors that allows a business to purchase goods or services now and pay for them later.
Advantages of trade credit
Easy to set up
Frees up working capital
Discounts for early payment
Disadvantages of trade credit
short term, must be paid off quickly
usually small amounts
Advantages of bank loan
Ownership remains with borrower
Flexibility
Cash benefits
Disadvantages of a bank loan
Interest rates costs
Processing fee
Partial funding requirements
Define overrraft
a line of credit on your business bank account that gives you more short-term cash flow than your business can fund from its own capital.
Define share capital
the money it raises from selling common or preferred stock
Define hire purchase
an agreement where the buyer makes a downpayment and pays the balance plus interest in installments.
Define leasing
allows your business to use an asset in exchange for rental payments, which may include an advanced rental, over a set period
Define venture capital
Venture capital is a form of investment for early-stage, innovative businesses with strong growth potential
Define debt factoring
Debt factoring is when a business sells its accounts receivables to a third party at a discount, enabling companies to immediately unlock cash tied up in unpaid invoices without having to wait the usual payment terms.
Define mortgage
loans secured against commercial property.
Define peer to peer lending
an alternative form of business finance which allows individuals or businesses to lend directly to other people or businesses, bypassing traditional banks.
