2.1 Raising finance Flashcards
(36 cards)
What are 3 sources of internal finance
Retained profit
Sale of assets
Owner’s capital (personal savings)
What are 8 sources of external finance
Venture capital
Bank loans
Crowd funding
Overdrafts
Trade credit
Grants
Leasing
Share capital
Ads and dis of retained profit
Ad:
- Free source of finance that doesn’t incur interest
Dis:
- Shareholders may wish to receive it back in dividends
Ad and dis of Sale of assets
Ad:
- Frees up value in unwanted assets to be invested in other areas of the business
Dis:
- Loses the benefit of the asset, e.g no longer owning a delivery vehicle
Ad and dis of owner’s personal savings (capital)
Ad:
- Free source of finance that doesn’t incur interest
Dis:
- Owners could lose their personal investment
Ad and dis of overdraft
Ad:
- Flexible way to fund working capital
Dis:
- Bank may ask for repayment at any time and interest rates are high
Ad and dis of Trade credit
Ad:
- Suitable for buying raw materials and paying back suppliers later
Dis:
- Delays in payment can damage relations with supplier
Ad and dis of Grants
Ad:
- Government schemes may be available to some small businesses
Dis:
- Generally only given for social, economic or environmental benefits
Ad and dis of leasing
Ad:
- Assets can be acquired without large capital spending to acquire them
Dis:
- In the long term a leased asset is more expensive than paying it outright
Ad and dis of Bank loans
Ad:
- Can be negotiated to meet the business requirements
Dis:
- Business have to pay interest and may have to offer collateral to secure it
Ad and dis of venture capital
Ad:
- Can bring expertise into the business
Dis:
- Owner may not want input on how to run their business, also may not want to give up some ownership
Ad and dis of share capital
Ad:
- Can access large amounts of capital at no interest
Dis:
- Only available to Ltd (people you know) and PLC’s (Public)
Ad and dis of crowd funding
Ad:
- Cheap and easy to set up
Dis:
- May not be suitable for raising large amounts of capital
What types of finance are suitable to a Limited liability business
Share capital
retained profit
Bank loans
Business angels
Venture capital
What types of finance are suitable to a business with unlimited liability
Personal savings
retained profit
Mortgages
Peer to peer lending
unsecured bank loans
Crowd funding
Overdrafts
Define a business plan
A document that outlines a businesses goals and strategies
What is contained in a business plan
- Executive summary
- Business idea and opportunity
- Aims and objectives
- Market research
- Financial forecasts
- Source of finance
- Premises and equipment
- Personnel
- Buying and production
What is the executive summary in a business plan
A page overview of the business outlining its purpose
What is the business idea and opportunity in a business plan
An outline of the business idea and concept so that all stakeholders understand the owners intentions
What is aims and objectives in a business plan
Should be SMART. The owner uses this to measure their success against these targets
What is market research in a business plan
Research into the target market, the market and competition
What is financial forecasts in a business plan
These will include predictions on costs, revenue, profit and cash flow
What is sources of finance in a business plan
A plan on how the business will be financed and how borrowings will be repaid
What is premises and equipment in a business plan
The location of the business and what equipment the business might need
