Theme 2 Finance Flashcards
Sources of finance
What is ……. And benefits + drawbacks
Owners capital (personal savings)
+doesn’t require you to pay back.
-might not have enough savings for the use needed.
Retained profit
A businesses net income that isn’t paid out to shareholders.
+ safety net for emergencies
-potentially turning off shareholders by retaining money that could used for dividends.
Sale of assets
Selling things other than stock
+ can quickly raise money from unused equipment
- might not get the full market value
Family and friends
+ may not need to be paid back
- arguments may occur
Method- Bank loan
+ can get a significant amount of money all at once
- have to pay interest
Business angel
Someone with high ent worth and business experience who invests into growing businesses.
+ use of expertise and guidance.
- loss of control.
Crowdfunding
+ money may not need to be repaid.
- not in control of who’s donating.
Other businesses
+ expertise.
-may need to be paid back.
Method- Share capital
Shareholders invest into company in return to gain a share.
+ no repayment.
- reduces control.
Method- Venture capital
Money invested usually to a start up or have substantial element of risk.
+ they may offer help and advice
- they may different visions for the business.
Method - Over drafts
+ allows emergency purchases.
-Hugh interest rates.
Method-Leasing
Using assets but renting for them
+ leasing company responsible for repairs and maintenance.
- assets aren’t owned.
Method-Trade credit
Business to business, pay the supplier later.
+access to supplies and no interest, can sell before pay back.
- must be paid off quick.
Method-Grant
Maybe supplied by government for a purpose like training.
+ doesn’t need to be paid back.
-time consuming to apply , paperwork.
Difference between limited and unlimited liability+-
L- shareholders and owners can only loose the amount invested e.g proven limited company.+ - expensive to start up
UL- business owners are liable for all business debts and all personal belongings are at risk-