sources of finance Flashcards
owners capital
money that is put into the business from the private savings of the owners
owners capital advantages
quick and convenient
doesn’t require borrowing money
no interest payments to make
owners capital disadvantages
the owner might not have enough savings or may need the cash for personal use
once the money is gone, it’s gone
sale of an asset
businesses may have assets they no longer need, such as an old factory sitea
advantages of sales of an asset
can create space for more profitable uses
can be quick
raise money from unused equipment
disadvantages of sale of an asset
might not get the full market value of the assets or even be able to sell them at all
might need the assets in the future
retained profit
a business can pay out the profits it made last year to owners or shareholders, or it can reinvest the profit back into the businessr
retained profit advantages
quick and convenient
easy access to the money
no interest payments to make
disadvantages retained profit
once the money is gone, it is not available for any future unforeseen problems the business might face
over draft
can withdraw more money out of the bank than you actually have
overdraft advantages
quick access
allows emergency purchases
overdraft disadvantages
high interest rates
is only a short term solution
bank loan
money that the business loans fom a bank but will pay back over a period of time and will include interest
bank loan advantages
easy and quick to access
can get a significant amount of money at one time
bank loan disadvantages
have to pay interest
difficult for a new business to access
friends/family loan
money that is loaned by the owners friends or family, but will be paid back of a period of timef
friends/family loan advantages
low interest
money may not need to be paid back
friends/family loan disadvantages
money may be lost if the business fails
arguments may occur between family members
grant
money that is given to the business to invest usually i growth, doesnt have to be paid back
grant advantages
does not need to be paid back
available to small businesses
grant disadvantage
business needs to meet certain criteria
it is time-consuming to apply for grants and to complete the paperwork
venture capitalist / business angels
venture capital is money invested ina business by professional investors. when veenture capitalists invest, the expect a say in how the business will run. business angels tend to focus only on new businesses looking to grow
venture capitalists/ business angel advantages
gain money quickly
potential to raise huge amount of money
they may offer advice and help
venture capitalists/ business angel disadvantages
owner must give away part of the business
they may have a different vision for the business than the owner does
new partner
good way of helping fund investment
new partner advantages
easy way to gain money
potential to raise huge amount of money
they may offer advice and help
new partner disadvantages
owner must give away part of the business
they may have a different vision for the business than the owner does
share issue
able to raise extra finance by selling shares
share issue advantages
can gain lots of money quickly
no interest payable
share issue disadvantages
give away part of the business
leaves a business open to takeovers
shareholders receive dividends
hire purchase
used to fund a specific purchase, such as equipment, the business never owns these items, but makes regular payments
hire purchase advantages
expensive assets can be purchased and paid back over time
hire purchase disadvantages
interest is charged on hire purchase items
equipment is not owned until the final payment is made
leasing
involves renting machinery, equipment and vehicles, never owns , regular payment to owner of asset
leasing advantages
no large upfront payments
leasing company may be responsible for repairs and maintenance
leasing disadvantages
over time it can be a more expensive way to obtain assets
assets aren’t owned by the business
trade credit
short term method of financing, to buy stock or materials, 30 days to pay
trade credit advantages
access to supplies without immediate payment
no interestt
trade credit disadvantages
short term, must be paid off quickly
usually small amounts
Gross profit
total rev - cost of goods sold
GPM
gross profit/sales X100
NPM
net profit/sales X100
Net profit
gross profit- expenses
reasons for changes in net and gross profit
-Sales Revenue has increased or decreased
* Costs of Goods Sold have increased or decreased
* Expenses have increased or decreased.
turnover calculation
: Selling Price × Quantity Sold
net cashflow
Total Inflow – Total Outflow
opening balance
The cash available to a business at the
start of a month, carried over from the closing
balance of the previous month.
closing balance
= Opening Balance + Net Cash Flow
ways to improve cashflow position
- reducing staff
- buying cheaper materials
-increasing promotions - delay payments
- extra funding
business advice
- Bank
- Business wales
- Princess trust
what advice can banks give you?
- help and support
- wealth planning
- pension scheme
- mortgages
what advice can business wales give
- recruitment
- skills
- growing your business
what advice can the princess trust give
- civil legal advice give
- funding to train and learn
what does gross profit margin show?
looks at the % sales that is gross profit
what does net profit margin show?
looks at the % sales that is net profit
cashflow forecast
it is a prediction of the cashflow
cashflow statement
factual based on actual figures
why is creating a cashflow online easier?
because if there are changes to be made you can change 1 figure and it will all change but on paper you would have to rewrite
