Paper 2 revision Internal finance Flashcards
What is capital expenditure?
Is spending on fixed assets such as equipment, buildings, IT equipment and vehicles
What is the difference between a stakeholder and a shareholder?
A stakeholder has an interest in the performance of a company but a shareholder owns part of a public company through shares or stock.
What is revenue expenditure?
Spending on raw materials or day to day expenses such as wages or utilities
Business can have two types of finance. What are these?
Internal (comes from inside the business) and external finance (comes from outside the business)
What is Owners Capital?
Personal savings that are key to a businesses start up
What is retained profit?
The profit that has been generated in previous years and not distributed to owners is reinvested back into the business. This is a cheap way of using finance as it does not involve borrowing and interest.
Define sales of assets
Selling business assets which are no longer required (e.g. machinery, land, buildings) generates a source of finance
State two advantages of using sales of assets
1) Business that may have failed credit checks can access internal finance sources more easily
2) It does not involve third parties who may want to influence business decisions
What are the sources of external finance?
1) Family and friends 2) Business Angels 3) Banks 4) peer-to-peer lending 5) Crowdfunding 6) Other Businesses
State an advantage of using family and friends to access finance?
May have ‘no strings attached (e.g. a share of the business) and can be provided to the business on very flexible terms
State a disadvantage of using family and friends to access finance?
Relationships may be damaged if the finance is not repaid
State an advantage of Bank Loans
May offer both short term finance (e.g. overdrafts) and long term finance (e.g. loans or mortgages) if a business qualifies
State a disadvantage of bank loans
A business plan is usually required to access bank finance
State an advantage of Peer to Peer Funding
Loans can usually be made available to businesses very quickly
State a disadvantage of Peer to Peer Funding
Borrowers are charged a small fee to access finance in this way and have to pay interest in the same way as a bank loan
The individuals who made the money available in the first place receive some of this interest as compensation
State two advantages of Business Angels
Angels often offer advice and guidance to the businesses in which they invest
Investment is usually for a determined period of time so owners regain shares in the future
State two disadvantages of Business Angels
As business angels own a stake in the business, they may be involved in decision-making and will receive a share of business profits
State an advantage of crowdfunding
A good credit rating is not required so new businesses that lack a trading record can attract funding
State a disadvantage of crowdfunding
The potential for negative publicity if the project is not successful in attracting enough crowdfunding capital
State an advantage of finance from other businesses
May provide access to business processes and market knowledge alongside finance
State a disadvantage of finance from other businesses
Decisions will usually need to be agreed by all of the businesses involved also profits have to be shared
