planning a business and Raising finance:planning and internal finance

3 ways one can internally raise finance

• sale of assets

• owner’s capital

• retained profit

why is finance raised

• expansion

• business start-up

• items of expenditure: revenue expenditure or capital expenditure

• to repay debts

• to buy stock

define capital expenditure

items that may be reused so last longer such a vehicles, cutting machines and factories

define revenue expenditure

goods/ services that can only be used once or used in the short term. this includes: wages, raw materials, and fuel.

define owner’s capital

money available within the business or generated by the business

example: personal savings,

definition of a business plan

a documented plan for the development of a business, giving details such as the products to be made, resources needed and forecasts such as costs, revenues and cash flow

contents of a business plan

• executive summary

• elevator pitch

• the business and its objectives

• the business opportunity

• owner’s background

• the market

• personnel

• premises and equipment

• costing and finance

• financial forecasts

• SWOT analysis

executive summary definition

overveiw of the business start up that describes the business oppertunity to be exploited,marketing, sales strategy, operations and finance

elevator pitch

2 minutes talk introducing the business

the business and its objectives

includes:

• name of business

• legal structure

• objectives and aims

• trading address

business opportunity

a clear explanation of what the business sells whether its a product or service

owner’s background

an introduction to the owners of the business which include their skills and characteristics required to run a business. investors use this to find out if the entrepeneur has the skills required to be succesfull

the market

describe the size and potential of the market including how the business will advertise

personelle

identifies and states the number of employees and the skills that they need

premises and equipment

what capital expenditure is required to run the business

costing and finnce

working out how much running the business will cost

financial forecasts

a forecast of how and when the start up will break even

SWOT analysis

S-strengths

W-weaknesses

O-opportunities

T-threats

why is a business plan important

• to make owners have an objective and critical outlook on the business

• provide a strategy for the development of the business

• provide an action plan that identifies key tasks that must be undertaken and goals met

• to prove to lenders that the owners is SMART

what is internal finance

money generated by the business or the current owners

owners capital

money provided by the owners in the business

advantages of owner’s capital

quick and convenient doesn't require borrowing money no interest payments to make

• Doesn’t have to be repaid​

• No interest is payable

disadvantages of owner’s capital

the owner might not have enough savings or may need the cash for personal use once the money is gone, it's gone

There is a limit to the amount an owner can invest

advanatages of ratained profit

• Doesn’t have to be repaid​

• No interest is payable​

disadvantages of retained profit

• Not available to a new business​

• Business may not make enough profit to plough back ​

advantages sales of assets

• Good way to raise finance from an asset that is no longer needed​

disadvantages of sale of assets

• Some businesses are unlikely to have surplus assets to sell​

• Can be a slow method of raising finance ​

capital expenditure

spending on business resources that can be used repeatedly over a period of time

internal finance

money generated by the business or its owners

retained profit

profit after tax that is put back into the business

revenue expenditure

spending on business resources that have already been consumed or will be shortly

sale and leaseback

the practice of selling assets such as property or machinery and leasing them back from the buyer