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business > internal and external sources of finance > Flashcards

internal and external sources of finance Flashcards

1
Q

internal sources of finance

A

money available within a business

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2
Q

retained profit

A

profit kept in a business to fund future expenditure

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3
Q

advantages of retained profit

A

no interest charged and available immediately. and only available for the amount already accumulated so avoids debt.

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4
Q

disadvantage of retained profit

A

amount available may be limited, once used it is not available for alternative purchase.

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5
Q

net current assets

A

current assets minus current liabilities shows the money available in the business to fund day to day expenditure

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6
Q

advantages of net current assets

A

encourages business to manage cash flow effectively

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7
Q

disadvantages of net current assets

A

lower stock holding can affect the firms ability to meet customer needs

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8
Q

sale of assets

A

selling an item of worth owned by a business for an immediate cash injection

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9
Q

advantages of sale of assets

A

no interest, could dispose of an asset that is no longer in use to the business, reduces capital tied up in assets making it useful for other purposes

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10
Q

disadvantages of sale of assets

A

it is likely that amount received is not a true reflection of the value of the asset, can increase costs in long run if an asset needs to be leased back.

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11
Q

external sources of finance

A

sources of finance available from outside the business

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12
Q

owners capital

A

money invested in the business from the owner’s personal savings

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13
Q

advantages of owners capital

A

no interest payments/ need to repay, high level of commitment

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14
Q

disadvantages of owners capital

A

amount available is likely to be limited, if more than one owner is could cause friction as everyone might not be able to contribute the same amount

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15
Q

loans

A

money borrowed from a financial institution

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16
Q

advantages of loans

A

regular pre agreed repayments make planning and budgeting really easy, Ownership or control is not lost

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17
Q

disadvantages of loans

A

interest is charged on amount borrowed, interest rates fluctuate, often secured against asset which can be seized if repayments are missed.

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18
Q

crowd-funding

A

involves attracting investments from a large number of speculative investors who may invest relatively small amounts. if all together it matches the amount needed then investments will be collected together

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18
Q

advantages of crowd funding

A

offers ability to to raise finance from large number of investors, no interest is paid as investors will only be rewarded if business is sold.

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19
Q

disadvantages of crowd funding

A

partial loss of ownership, no guarantee that the crowd fund will attract sufficient investments to meet the proposal

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20
Q

moartgages

A

these are long term loans, around 25 years normally and used for purchase of specific item/ asset. eg. a house

21
Q

advantages of mortgages

A

large amounts of finance can be raised and repaid over a prolonged period of time, ownership or control is not lost.

22
Q

disadvantages of mortgages

A

interest is charged on amount borrowed, interest rates can fluctuate, often secured against an asset which can be seized if repayments are missed, not suitable for small amounts or short term sources of finance.

23
Q

venture capital

A

an investment from an experienced entrepreneur in return for equity of the business.

24
Q

advantages of venture capital

A

finance is provided by a business professional who will often offer advice, mentoring alongside the investment. venture capitalists are risk takers and may see the high potential in high risk investments that other investors like banks may not see.

25
Q

disadvantages of venture capital

A

partial loss of ownership and control, conflict can arise between entrepreneur and venture capitalist regarding the directions and day-to-day expenditure.

26
Q

debt factoring

A

involves selling a businesses debts to a third party in order to receive cash quickly,

27
Q

advantages of debt factoring

A

speeds up flow of cash into business from debts, factor company takes on risk of bad debt.

28
Q

disadvantages of debt factoring

A

only receive a percentage of amou8nt owed therefore reducing profit, can give wrong impression to customers

29
Q

hire purchase

A

involves paying to use an asset in installments. property of seller until final payment is done

30
Q

advantagesof hired purchase

A
31
Q

disadvantages of hire purchase

A
32
Q

leasing

A

paying to use an asset in installments and remains in ownership of the supplier throughout the lease agreement.

33
Q

advantages of leasing

A
34
Q

disadvantages of leasing

A
35
Q

trade credit

A

period of time offered by suppliers to allow the customer to purchase a good or service now and pay later.

36
Q

advantages of trade credit

A
37
Q

disadvantages of trade credit

A
38
Q

grants

A

lump sum provided to a business by government or another organisation to be used for a specific purpose.

39
Q

advantages of grants

A
40
Q

disadvantages of grants

A
41
Q

donations

A

sums of money given voluntarily to a charity

42
Q

advantages of donations

A
43
Q

disadvantages of donations

A
44
Q

peer-to-peer lending

A

involves one business person lending money to another business person in return for interest payments

45
Q

advantages of peer-to-peer lending

A
46
Q

disadvantages of peer-to-peer lending

A
47
Q

invoice discoutning

A

reductions offered to customers making product or service cheaper often applied as a percentage

48
Q

advantages of invoice discounting

A
49
Q

disadvantages of invoice discouting

A

business (5 decks)

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