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Flashcards in 2.1 raising finance Deck (28)
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1

What are the internal sources of finance
Explain them

Owners capital - owner uses own funds
Retained profit - most common form
Selling assets - sell assets it no longer needs

2

What are the external sources finance

Explain

Family and friends - provide start up capital
Banks - provide loans and overdrafts
Peer to peer funding
Business angels- rich individuals who invest in risky start ups
Crowdfunding

3

What are the methods of finance

Explain

Loans
Share capital
Venture capital
Overdraft
Leasing
Trade credit
Grants

4

What is a loan

Where money is borrowed by a business and paid back over a period of time with interest

5

What is share capital

Where shares of the business are sold to the public or privatised

6

What is venture capital

Where capital is provided to high risk businesses with high interest rates

7

What is an overdraft

Where the bank allows a business to continue spending , even when in minus. Paid back with interest.

8

What is leasing

Where an asset can be used whilst maintaining a balanced cash flow.

9

What is trade credit

Goods provided by a supplier which are not paid for immediately

10

What is a grant

Money provided by the government to operate in an area to boost the economy. Are extremely rare and the business has to follow strict regulations

11

Define liability

What a business owes

12

What is unlimited liability

Happens in a sole trader or partnership business where the owners funds are at risk if the business fails to pay its debts.

13

What is limited liability

Happens in a LTD or PLC where the liability is limited to the amount of capital invested in the business

14

Define cash flow forecasts

A projection of the likely cash inflows and outflows in a business

15

What is opening balance

The money a business has available at the start of the month

16

Define cash inflows

Money coming in to the business, can be through sales or investment

17

Define cash outflows

Expenses for the business, like stock, fixed costs and variable costs

18

Define closing balance

The amount of money a business is left with at the end of the month.

19

What is the use of cash flow forecasts

To spot cash flow problems in advance

20

How can a business improve cash flow

Produce and distribute products as quickly as possible
Chasing debtors who owe money
Keeping stock to a minimum

21

Why may cash flow forecasts not be entirely accurate

Conditions in the market can change
Business may not sell all output

22

What is a business plan

A document setting out a business idea and how it will be financed, marketed and put into practice

23

What will a business plan help the business with

Consider potential future risks
Maintain a clear sense of direction
Have objectives to aim for

24

What should a business plan include

Executive summary
The product /service
The market
Marketing plan
Operational plan
Financial plan
Conclusion

25

What should the main part of the business plan be

The cash flow forecasts

26

What Finance would be appropriate for a unlimited liability business

Owners capital
Bank finance (loans and overdrafts)
Leasing
Trade credit

27

What finance would be appropriate for a limited liability business

Loans and overdrafts
Share capital
Angel or venture capital investment

28

Explain the advantages and disadvantages of internal finance

A
The capital becomes available immediately
Is cheap due to no interest payments or administration costs
Not subject to external checks
No involvements of external businesses

D
Can be limited in the amount
Not tax deductible, external finance methods of interest payments can be offset against tax
Less variety of internal options than external
Opportunity cost is high