Raising finance Flashcards
(15 cards)
Public limited company
Sell shares to the general public on the stock exchange
+Limited liability
+Easiest way to raise finance
-Greater admin costs
-Greater regulation + public disclosure of company info
Private limited company
Owned by shareholders- family & friends
+Limited liability
+Easiervto raise finance
-Greater admin costs
-Public disclosure of company info
Partnership
A business is owned by 2 or more people
+Quick + easy to set up
+Business has expertise & skills of more than one owner
-Unlimited liability
-One partner’s decisions affect another
Sole trader
Individuals owning the business on their own
+Quick & easy to set up
+Control over business decision
-Unlimited liability
-Illness means lack of income
Unlimited liability
The business owner is personally responsible for the debts of the business
Limited liability
Business owners are only responsible for business debts up to the amount they have invested in the business.
Internal finance
Capital raised from within the business.
1. Owner capital- Using their own money to set up a business
2. Retaioed profit- any money generated by the business may be reinvested into the business
3. Sale of assets- selling goods that the business owns, and can lease back
Evaluation of internal finance
+Keep full ownership of the business
+No interest payments
+Cash available immediately
-Often not enough to run the business alone
-Opportunity cost, once retained profit is used it is no longer available
External finance
Capital raised outside of the business
1. Family & friends
+Little/no interest
-Probaly wont be enough
- Bank loan
+Provide advice/guidence
-Paid back with interest
3.Business angles-Proffessional businesss people buy shares
+Specalist advice
-Loose some ownership of the business
Other sources of external finance
- Bank overdraft
+Instant so improves cash flow
-High interest rates
2.P2P lending-matched with lenders online
+More likely to be approved than a loan
-Not well well-regulated, risky form of finance
- Crowdfunding
+Dont owe anyone money
-Need to convince people with an interesting business plan - Share capital-selling shares in return for capital
+Potential to raise a lot of capital
+Dont have to pay back
-loose decision-making power
-Have to pay dividends - Trade credit- obtain stock from suppliers but don’t pay immediately
+Improve cash flow
-Not suitable for large amounts - Grant-Money from the government or charity
+Dont have to be paid back
-Have to meet certain criteria to qualify
Venture capital
-Money invested by an individual/group, taking a risk on a smaller business, in exchange for a share of the profits
-Take more risk than business angles
+Quick source of finance
+Provide advice
-Have to give up some ownership
-Can slow decision-making
what is a business plan
A document that defines in detail a company’s objectives and how it plans to achieve them
Cashflow forecast
The process of estimating a company’s future financial position, based on its inflows and outflows
Evaluation of cashflow forecast
+Provides advanced warnings of cash shortages
+Identify issues with customer payments
-Only an estimate, cant predict external shocks
-Need to have the skills to produce a cash flow forecast
How a business plan helps to raise finance
-Helps finance providers assess the business model
-Provides a structured assessment of the opportunities and risks
-Helps determine the amount and type of finance required
