Theme 2 Flashcards
Internal Finance
Finance raised within the business
External Finance
Money that comes from outside a business.
Retained Profit
Profits that are kept for re-investment.
Advantages of Retained Profit
No Interest, Flexibile Use.
Disadvantages of Retained Profit
Opportunity Cost, May not be enough profit to reinvest.
Advantages of Owners Capital
No Interest, Free Source.
Disadvantages of Owners Capital
Risk of investment loss, may not have enough saved up.
Advantages Of Bank Finance
Large Amounts Obtainable, Trustworthy and Reliable Source.
Disadvantages of Bank Finance
Interest, Need to Provide Collateral.
P2P Advantages
Interest Rates Often Low, Fast Approval Process.
P2P Disadvantages.
Can Be Hard to Obtain.
Advantages Of Business Angels
Possible Large Scale Investment, Advice and Possible Knowledge.
Disadvantages of Business Angels
Loss Of Control Over Business.
Advantages Of Crowd Funding
Can Be Cheap + Easy to Set Up.
Disadvantages of Crowd Funding
Not suitable for raising large amounts of money, unreliable.
Advantages Of Share Capital
No Interest, Can Raise Large Amounts.
Disadvantages Of Share Capital
Dilutes Control, Business Becomes Vulnerable.
Venture Capital
Money invested into business by business angels.
Advantages Of Venture Capital
Can obtain large amounts of knowledge and experience.
Disadvantages of Venture Capital
Loss of control/profits; loss of independence.
Advantages of Trade Credit
Keeps money in the business - improves cash flow, possible discounts for early payment.
Disadvantages of Trade Credit
Supply chain complications, Risk of late payment.
Advantages of Grants
Doesn’t need to be paid back, No loss of control.
Disadvantages of Grants
Competitive, hard to obtain, Does not cover the full cost.
Business Plan Benefits
Supports Budgeting, Supports Lending, Identify Any Potential Cash Flow Problems.
Business Plan Limitations
Inaccuracy; figures can be estimates/forecasts.
Cannot predict external shocks.
Uses Of Cash Flow Forecasts
Identifies problems with payments/sales revenue.
Assesses ability to pay suppliers/employees.
Identifies shortfalls in cash.
What Does The Business Plan Focus On?
Marketing Plan - Market Research, Market Mapping,
Operational Plan - Production Methods, Materials Needed,
Financial Plan - Finance Needed, Projection of Revenue and Costs.
Cash Flow Forecasts Definition
Cash flow forecasts show the expected income and expenditure of the business over the coming year.
