Topic 2.1 Raising finance Flashcards
Mrs Hudson (52 cards)
1
Q
What is internal finance?
A
- Money from within the business
2
Q
Sources of internal finance
A
- Personal savings
- Retained profits
- Sale of assets
- Owners capital
3
Q
Reasons why businesses need to raise finance
A
- To buy supplys/technology
- To expand and grow
- To break even
- To pay bills/debts
4
Q
Benefits of internal finance
A
- No money to pay back with intrest
- money is easily available
- Doesn’t Involve third parties who may want to influence decision making
5
Q
Drawbacks of internal finance
A
- May charge intrest on finance`
- Once the moment has been used it is gone
- The amount of money may not be sufficient
6
Q
Retained profits
A
- Involves re-investing their profits into the business
7
Q
Benefits of Retained profits
A
- Doesn’t cost the business anything to obtain the finance
8
Q
Drawbacks of Retained profits
A
- May not be a sufficient amount of finance
- Newer businesses won’t have much
9
Q
Sale of assets
A
- Selling items that the business owns eg. machinery, land
10
Q
Benefits of the Sale of assets
A
- Doesn’t cost the bussiness anything to obtain the finance
11
Q
Drawbacks of the Sale of assets
A
- May take a while for the assets to sell
- No longer have access to the assets
12
Q
What is external finance?
A
- Finance that is sourced from outside the business
13
Q
Advantages of External finance
A
- Can speed up expansion
- Supports uneven cash flow
14
Q
Disadvantages of External finance
A
- Higher intrest rates
- Decreased control
15
Q
Family and friends
A
- When family and friends give or loan you money
16
Q
Advantages of family and friends
A
- You stay in control of your business
17
Q
Disadvantages of family and friends
A
- Could cause disputes
- May have to pay therm intrest
18
Q
Bank loans
A
When a bank provides you with. larger sum of money
19
Q
Advantages of bank loans
A
- Still have full control over your business
- Offers short and long term finance
20
Q
Disadvantages of bank loans
A
- Usually requires a business plan
- Money needs to be paid back with intrest
- lengthy and strict criteria
21
Q
Peer to peer funding
A
- Unsecured loans eg. Student loans, pay day loans
22
Q
Advantages of Peer to peer funding
A
- Quicker and easier than a bank
- Remain in full control
23
Q
Disadvantages of Peer to peer funding
A
- Limited availability - may not be available in certain locations or to certain borrowers
- Have to pay intrest
24
Q
Angel investment
A
When other people use their personal savings to invest into your business
25
Advantages of Angel investment
- Brings in expertise/ knowledge
- Willing to take larger risks than banks eg. smaller businesses
26
Disadvantages of angel investment
- Want shares in your business
27
Crowdfunding (Donations)
A - Do not need to be paid back
D - usually only for social enterprises as they don't make a profit
28
Crowd funding (Lenders)
Getting money back with intrest and the satisfaction of helping a small business
29
Crowdfunding (Investment)
In exchange for shares which may increase in value
30
Ordinary share capital
- Raised through selling shares
31
Advantages of Ordinary share capital
- Can raise large amounts of finance
- Lower risk of bankcruptcy
32
Disadvantages of Ordinary share capital
- lose control of your business
- They get a share of your profits
33
Venture capital
- Getting outside investment as the business is unable to raise money through the stock market
34
Advantages of Venture capital
- Helpful if a business struggles to raise finance through other methods
35
Disadvantages of Venture capital
- Can loose control of the business
- High expectations and pressure
36
Overdraft
Allows the business to seemed money that it doesn't have in its account
37
Advantages of an Overdraft
- Allows the business to pay bills and wages even if they dont have sufficient cash
- Quick and easy
38
Disadvantages of an Overdraft
- Have to pay the money back with intrest
- No repayment plan so easy to fall into debt
39
Leasing
When one business rents and asset types another one in return for regular payments
40
Advantages of leasing
- No long term commitments
- Lower monthly payments
41
Disadvantages of leasing
- More expensive in the long run than just buying the asset
- More complicated
42
Trade credit
An agreement made with suppliers that's allows businesses to purchase raw materials but pay for them at a later date eg. 30-90 days after
43
Advantages of trade credit
- Usually intrest free
- Improves cash flows
44
Disadvantages of trade credit
- Risk of late payment fees
- Expensive if payment date is missed
45
Government grants
A sum of money that is given to your business from the government
46
Advantages of Government grants
- Not expected to be repaid
-
47
Disadvantages of Government grants
- Must meet specific criteria
- Only given a percentage of the cost of your project
48
Unlimited liability
- Fully responsible for the debts of the business
- Can loose their personal assets
49
Limited liability
- Can only loose the original amount they put into the business
50
Advantages of a cash flow forecast
- Identify when the business may go through periods of cash shortfalls or cash supluses
- Help aid planning so they can avoid costly mistakes
51
Disadvantages of a cash flow forecast
- Based on estimates
- Time consuming and require highly skilled workers to create them
-
52
Business plans and obtaining finance
- Business plan will reduce the risk associated with starting up a business
- Businesses have to think through everything
- Shows investors that they have done their research
- Helps select the most appropriate source of finance
