Finance-Prelim Flashcards
What are some short term sources of finance?
Bank overdraft, government grant, retained profits, leasing
Describe a bank overdraft.
Allows a business to overdraw an amount of money from their bank account.
What are the advantages of a bank overdraft?
-Easy to set up
-Quick to access finance
What is a disadvantage of a bank overdraft?
-must be paid back quickly or can be expensive due to high interest rates
Who is a bank overdraft available to?
-sole traders
-partnerships
-LTDs
Describe a government grant.
given to encourage entrepreneurs to start up a new business or open a business in a particular area by offering expert knowledge as well as financial assistance
What is an advantage of a government grant?
-Provides finance which does not need to be repaid
What is a disadvantage of a government grant?
-one off payments
- must fulfil criteria
Who are government grants available to?
-social enterprises
-charity
Describe retained profits.
When a business saves a portion of its profits and reinvests back into the company
What is an advantage of retained profits?
profits belong to the company so the owner is in control
What are the disadvantages of retained profits?
-relying on profits is risky, some months a business may not make profits
-May run out of retained profits quickly
Who are retained profits available to?
-Sole trader
-Partnership
-LTD
-Social enterprises
Describe leasing.
A business can lease or rent vehicles or machinery from another company. They pay a monthly fee and the leasing company takes care of maintenance.
What are the advantages of leasing?
-leasing company will repair and maintain the machinery which saves business costs
-if a business has limited finance this does not require a large initial payment.
what are the disadvantages of leasing?
-the business will never own the asset
-in the long run, the monthly costs will total to more than it would have cost to buy the asses outright
Who is leasing available to?
-sole trader
-partnership
-LTD