unit D Flashcards
(18 cards)
What are 3 types of internal sources of finance? (within business)
-retained profit
-net current assets
-sales of assets
what are the advantages and disadvantages of retained profit?
profit that is reinvested back into the business
-no loss of ownership
-immediate
-no interest
-reduces dividends
-limited
-opportunity cost
-only available to established businesses and businesses that make a profit
what are the advantages and disadvantages of net current assets?
this is the working capital: current assets - current liabilities. credit customers - short term debts.
-no interest payments or loss of ownership
-may have to accept a lower price for inventory.
what are the advantages and disadvantages of sale assets?
vehicles, buildings and equipment can be sold to give the business finance.
-get rid of unused assets
-can be a slow method
-asset not sold at full value
what are the 13 types of external sources of finance? (outside of a business)
-owners capital
-loans
-mortgages
-crowdfunding
-venture capital
-debt factoring
-hire purchases
-leasing
-trade credit
-grants
-peer to peer lending
-invoice discounting
-donations
what are the advantages and disadvantages of owners capital?
from owners personal savings
-quick
-no interest to repay
-limited
what are the advantages and disadvantages of loans?
business borrows from a financial institution.
-make repayments (spread cost)
-no ownership or control lost
-asset secured could be repossessed
-interest has to be paid.
what are the advantages and disadvantages of mortgages?
long term loans (25yrs+) used to buy properties and is secured to that property.
-repayments can budget
-large amounts
-no loss of ownership or control
-immediate use
-interest rates vary
what are the advantages and disadvantages of crowdfunding?
large amount of people invest small amounts into a business
-no interest
-only be rewarded if business is successful
-potential to raise lots of finance
-can reward financially or through discounts
-can harm businesses reputation if it fails
-amount raised must be refunded if target is not met.
what are the advantages and disadvantages of venture capital?
investments from experienced entrepreneurs
-get advice
-invest in risky businesses that banks wont
-large loss of ownership and control
-disputes are likely
-venture capitalists want to make large profits
what are the advantages and disadvantages of debt factoring?
selling debt to a third party business
-improves cash inflow
-debt is transferred to another company
-do not receive full amount owed
-can upset customers
what are the advantages and disadvantages of hire purchases?
buying an asset in monthly payments
-own asset when all payments are made
-immediate use
-can be quite expensive due to interest
what are the advantages and disadvantages of leasing?
pay a monthly feel to use an asset
-immediate use
-do not have to pay for maintaining asset
-do not own the asset
-more expensive in the long run
what are the advantages and disadvantages of trade credit?
buying goods from suppliers but paying later
-improves cash flow
-no interest
-only available to trusted businesses
what are the advantages and disadvantages of grants?
lump sum of money provided by the government
-do not have to repay
-no loss of ownership or control
-application process can be slow
-only certain businesses eligible
what are the advantages and disadvantages of peer to peer lending?
one business person lends to another business person in return for interest payments
-interest rate typically lower than banks
-fixed interest rate can make budgeting easier
-as they are one person, the investments could be in small amounts
what are the advantages and disadvantages of invoice discounting?
business negotiates discounts from suppliers
-reduce costs
-no ownership or control loss
-could annoy suppliers
-may need to pay early or buy in bulk
what are the advantages and disadvantages of donations?
gift of money given voluntary from an individual or organisation such as a charity
-do not have to repay
-no loss of ownership or control
-small amounts
-not guaranteed and unlikely so a business should not rely on these.
