Lesson 1 Flashcards
What do businesses need money for?
-everyday bill payments
-take over bid
-replace machinery/equipment
-internal growth
-expansion
-for starting up
What are the main reasons why businesses need finance?
Starting up - buildings, machinery, raw materials und office equipment
Working capital - short term finance required for the day - to-day running of a business.
Unforeseen events - sudden decline e in sales, large customer fails to pay on time or pay expenses quickly.
What is internal finance?
Finance which is raised internally, it does not increase the debts of the business.
What is external source of finance?
What is external finance?
Finance provided by people or institutions outside the business, creates a debt that will require payment.
What are some internal sources of finance?
- Retained profit
-owners capital- personal savings
-sale of assets
What is retained profit?
A businesses profit that they are able to re-invest into the business to help it grow.
What is retained profit?
A businesses profit that they are able to re-invest into the business to help it grow.
What is an advantage or Using retained profit?
No interest to pay.
What is a disadvantage of using retained profit?
Some shareholders may want to retain profit that could be used for dividends.
What is owners capital?
It shows the stake the owner has in the business
What is an advantage of owners capital?
- No interest payments to be made on loans
-no complex paperwork and no security needed
What is sale of assets?
A business can raise finance by selling items that they already own.
What is an advantage of sale of assets?
- No interest payments need to be made on loans
What is a disadvantage of sale of assets?
Once the business has sold the asset they lose the benefit of it e.g. A van they can no longer make deliveries with it.
