Theme 2 Flashcards
Owners capital
Personal savings
Sometimes called owners equity
Possibly inherited usually saved up
Could be redundancy pay
Only appropriate for soletraders or partnership
Retained profit
Profit a business has saved and not spent over a period of time
Only available to developed businesses
Sale of assets
Land , machinery, vehicles or premises
Sources
Where the finance comes from eg bank
Methods
Type of finance eg loan or overdraft
Friends and family
Private limited-selling shares to family and friends
Sole trader or partnership borrow from family or friends but as a loan
Banks
Loans and overdrafts
Overdraft is short term
Banks will be hesitant to give loan if involves risk
Peer to peer funding
Unsecure loans
Student loans
Payday loans
Debt factoring
Lease agreements
Business angels
Angel investing in equity finance using own personal finance
Provide experience and knowledge
Crowd funding
Donate:no money back rewards such as tickets or newsletters
Lend:money back with no interest
Invest: exchange for equity or shares
Bank loans
Often reluctant to give them to start up businesses
Quick source of finance
Effected by interest rates
A bank may ask for security or calateral
Share capital
Long term
Only applies to businesses with plc after their name
Floating shares on the stock market they can raise more by having an ordinary share issue
Overdraft
Used to tide over a business
Short term
Can have high charges and interest rates
Unauthorised overdraft will be charged heavily
Lease
Never owned
Change when it wears out
Trade credit
But now pay later
Short term
Helps with cash flow
Government grants
Don’t have to be repaid
Liability
Sole trader Unlimited
Partnership Unlimited
Private limited Limited
Public limited Limited
Franchisee Limited
Limited liability
Only liable for their original investment should the business fall into debt
Unlimited liability
Debts must be paid even if that means selling personal possessions
Uses of a business plan
Can be used to persuade people to lend money or invest
Helps owners with direction and targets
Identify possible problems
Monitor effectiveness
Cash flow
Measures how much money a business has available to allow them to pay running costs
Uses of cash flow forecasts
Control and monitor cash flow
Support applications for finance
Spot surpluses and shortages
Can make comparisons of actual with expected at years end
Sales volume
Number of sales made
Also known as output
limitations of cash flow forecasts
bias, optimistic or pessimistic
prediction can sometimes not take problems into consideration
need regular updating
can be inaccurate if over a long period of time
breakeven
the point at which revenue equals costs so your business is making neither profit nor a loss
fixed costs/contribution
benefits of breakeven
-quick and simple method for setting targets
- clear target to business of what sales need to be made for the business to be successful
-allows the business to explore what if scenarios
key part of a business plan
drawbacks of breakeven
-assumes costs and selling price don’t change however this isn’t the case ,they fluctuate.
-assumes every product is sold at the same price
-breakeven is only based on one product
profit
revenue-total costs
profit and loss account
