2.1 Raising Finance

Define internal finance

Finance coming from inside the business

Define external finance

Finance coming from outside the business

Define owners capital

Personal savings from the business owner

Define retained profit

Profit generated in previous years and not distributed to owners is reinvested in the business

Define working capital

Money used in the day to day operations of a business

Define opportunity costs

The value of the benefit that the money could’ve been used on other things

Define overdraft

A flexible arrangement with a bank allowing businesses to spend more than they own

Define peer-to-peer funding

Individuals with available savings pool it with others to invest into a scheme

Define business angels

Individuals specialising in making investments into start-up or expanding businesses

Define crowdfunding

Finance provided by a large number of small investors on online platforms

Define joint venture

A contextual agreement between firms two combine resources and knowledge to achieve a goal

Define takeover

One firm acquiring another by purchasing their control or merging

Define a loan

A sum of money borrowed and repaid (with interest) over a determined period of time

Define share capital

Finance raised from the sale of shares in a limited company

Define venture capital

Funds provided by specialist investors in small to medium sized businesses that have potential for growth

Define leasing

An asset such as a piece of machinery is used in return for regular repayments

Define trade credit

An arrangement is made with supplies to buy raw materials, component and stock, paid for at a later date

Define Grants

Government and industry trusts offer finance for businesses meeting a special criteria

Define unlimited liability

Structures offering no legal protection to owners

Define limited liability

Owners assets are considered separate to those from the business

Define capital expenditure

Finance on buildings and equipment

Define revenue expenditure

Finance on purchasing raw materials

Define business plan

A document produced by the owner at a start-up, providing forecasts of sales, costs and cash flow

Define opening balance

Previous months closing balance carried forward

Define net cash flows

Total inflows - total outflows