Finance Flashcards
What are the 5 internal sources of finance
Owners investment Debt collection Sale of fixed assets Sale of inventory Retained profits
What are the 8 external sources of finance
Government grants Trade credit Mortgage Hire purchase Leasing Share issue Additional partners Bank loan/overdraft
What is owners investment and give an advantage and disadvantages of it
Owners use their own financial resources and invest their private money into the business
Adv-Does not have to be repaid
DisAdv- Limited additional capital to call on/Not a large amount available
What is retained profits and give an advantage and disadvantages of it
When owners plough back profits from previous years instead of taking them out of the business for their own use.
Adv-Does not have to be repaid
DisAdv- Might not have enough profit to do this or very limited
What is sale of inventory and give an advantage and disadvantages of it
All businesses will have inventory (stock) which has not been sold – the business can raise finance by having a sale and offering the stock at a discount. E.g. Christmas sales
Adv- quick way to raise money
DisAdv- May not have extra inventory
What is the Importance of cash flow forecast
- Ensures the business never suffers shortages of money
- Ensures the business has a steady supply of money.
- Without good cash flow business would be forced to close.
- Employees would not continue to work in the business without being paid.
- Good cash flow means the business could take advantage of cheaper inventory.
What is the Purpose of cash flow forecast (5 reasons)
- To Help with forward planning
- To Review performance
- It Shows when finance is needed
- It Shows when loans need to be repaid
- It Gives the business confidence
What is cash flow?
Cash flow is the amount of money flowing into and out of a business over a period of time. Cash flow is vital to all businesses – if they don’t ensure they have a healthy cash flow then they could find themselves in difficulty paying essential bills.
Give 3 methods to improve cash flow
- Leasing instead of buying equipment
- Asking suppliers to extend credit periods
- Cutting expenditure
Give three consequences of incorrect cash flow forecasting
- It may cause a shortage of working capital
- It may cause capital to be unused
- Purchases may be at the wrong time-payment could be difficult
What is share issue and give an advantage and disadvantages of it
ONLY IN LIMITED COMPANY!!!! A business can raise extra finance by issuing new additional shares in the company.
Adv-No interest payable
DisAdv-New shareholders entitled to dividend and share of the profits
What is leasing and give an advantage and disadvantages of it
Leasing: This is when a business uses an asset, not having to pay a lump sum. The lease is arranged by the finance company and the business will make regular repayment to use the asset. BUSINESS WILL NOT OWN THE ASSET
Adv- Does not have to pay lump sum of money
DisAdv- expensive repayments
