Theme 2: Section 6 Raising Finance Flashcards
Source of Finance
Provider of finance, bank.
Choosing Source of Finance
Amount of money required, level of risk, cost of finance.
Internal source of Finance
Owner’s capital, selling assets, Retained profit.
Owner’s capital
Money the owner invests in the business, personal savings easy to access debt free.
Selling Assets (Machinery, factories)
Spare assets cheap, don’t pay interest.
Retained Profit
Have to make lots of profit, no interest.
External sources of Finance
Family and friends, Banks, peer-to-peer lenders, business Angels, crowd funding, other businesses.
Family and Friends
Offer money as a gift, flexible repayment no interest.
Ruin relationship.
Crowd Funding
Raising money via internet.
Banks
Loans, mortgages, overdrafts, advise/provide services.
Hard for start ups.
Business Angels
Invest money into businesses return, share of the business
Peer-to-Peer Lenders
Cheaper than bank, lower interest rate.
Other Businesses
Invest in another business than saving profit, if bank interests are low.
Overdrafts (Short-to-Medium Term)
Allowed a negative amount in bank, flexible, pay interest on only what they’ve borrowed.
Can charge high interest.
Leasing (Short-to-Medium Term)
Paying monthly sums of money over a period.
Don’t have to pay large up-front sum
Costs more long-term.
Grant (Short-to-Medium Term)
Fixed sum of money given by government, don’t pay it back.
Time consuming if applying.
Trade credit (Short-to-Medium Term)
Buying a good or service, not pay straight away until 30-90 days.
Helps cashflow, complete a job, receive payment before paying supplier.
Bad credit rating affects future.
Loans (Long-Term)
Fixed amount of money borrowed, paid back overtime.
Only payback the loan/interest.
Share Capital for Limited Companies (Long-Term)
New Shareholders bring knowledge.
Shareholders expect dividends.
Venture Capital used with High Growth Potential (Long-Term)
Business wanting to grow, investing into others.
Unlimited Liability
Business debts become personal, selling house.
Limited Liability
Not personally responsible for debts.
Limited Liability affects on Sources and Finance
Only lose what the’ve put in.
Unlimited Liability affects on Sources and Finance
Rely on external finances, loans.
Business Plan
Plans a business wants to achieve, how to achieve it, sales forecast.
Business Plan obtaining Finance
Cheaper long-term finance, cash flow forecast show loan repayments paid on time=low rate of interest.
Cash Inflow
Money received by business, product sales or loans.
Cash Outflow
Money paid out by business, raw materials or wages.
Cash Flow Forecast
Amount of money managers expect to go in and out in future, helps make sure got money.
Cash Flow Forecast inaccurate
Costs can go up or down, consumer tastes can change so sales may increase or decrease.
Cash In
Cash from sales and start-up loan.
Cash Out
Cash going out to pay costs.
Net Cash Flow
Cash Inflows-Cash Outflows
Closing Balance
Opening Balance+Net Cash Flow
