Business revenue and finance Flashcards
(42 cards)
What does a business consider before picking a source of finance?
How much? Used for? Repayments? IS the entrepreneur willing to give up ownership?
What is finance needed for?
start up costs, expenditure (machinery, vehicles), working capital (day to day), investment.
What are the short term sources?
Selling assets, retained profits, overdrafts, venture capital, leasing, grants, trade credit.
What are the medium term sources?
retained profits, bank loans, crowdfunding, venture capital, leasing, grants.
What are the long term sources?
owner’s capital, loans debentures, peer-to-peer, crowdfunding, share capital.
Owner’s capital:
money invested in the business from the owner’s personal savings
-Internal.
-No repayment/interest.
-May be limited.
Retained profits:
Profits made in earlier years and kept by the business and used for a variety of reasons including paying for growth.
-no interest/repayment.
-Flexibility.
-Might be limited.
-Internal.
Sales of assets:
when a business sells off its unwanted or unused assets to raise funds
-Internal.
-Frees up space.
-Immediate.
-May take time to sell, may not sell at all.
Overdrafts:
When a lending institution allows a firm to withdraw more money than it currently has in its account
-Good solution to short term cash flow problem.
-External.
-For emergencies.
-High interest.
Trade credit:
the practice of buying goods and services now and paying for them later
-Can make revenue before paying.
-High interest if missed payment.
-External
Debt factoring:
A bank sells their invoices to a bank to gain immediate access to cash.
-Improves cash flow.
-External.
-Do nor receive the full value of the invoice.
Hire purhcase:
an asset is sold to a company that agrees to pay fixed repayments over an agreed time period - the asset belongs to the company
-no large upfront cost.
-interest.
-External.
Leasing:
Renting a product while ownership title remains with the lease grantor.
-Cheaper in short term.
-Can easily switch to new technology.
-Easy regular payments.
-Interest and is more expensive in the long term.
-External.
Share capital:
Selling shares to raise finances.
-External.
-Dividends and slower decisions making.
Venture capital:
Money that is invested in new or emerging companies that are perceived as having great profit potential.
-External.
-Will want input and profits.
Business angels:
individuals who invest their personal capital directly in start-ups
-Offer knowledge and skills.
-Loss on control and profits.
-External
Friends and family:
Quicker and cheaper than a loan.
Can add stress and may not be enough
-External.
Taking on a new partner:
Partnerships can obtain additional finance by selling off part of the business to a new finance.
-More skills
-Loss of control and profits.
-External
Loans:
money borrowed that must be repaid with interest
-External.
-Regular repayments and instant money.
-Interest.
-Not provided to start ups because of lack of security.
What is revenue?
selling price x quantity sold
What is simple profit?
Revenue-costs.
What is gross profit?
Revenue- cost of sales.
What is operating profit?
Gross profit- operating expenses.
What is net profit?
Operating profits- interest and taxes.
