Chapter 14: Introduction to finance and sources of finance

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start-up capital

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17 Terms

1

start-up capital

capital needed by an entrepreneur to set up a business

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2

working capital

the capital needed to pay for raw materials, day-to-day running costs and credit offered to customers, in accounting terms: working capital = current assets - current liabilities

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3

management buy-out

the existing managers of a business purchase it from the owners to take full control

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4

internal finance

raised from the business’s own assets or from profits left in the business (ploughed-back or retained profits)

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5

external finance

raised from sources outside the business

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6

retained profit

the profit left after all deductions, inluding dividends, have been made; this is invested back into the company as a source of finance

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7

liquidity

the ability of a firm to pay its short-term debts

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8

overdraft

an arrangement with a bank that their customer can withdraw up to an agreed limit from their account as and when required; this is a form of borrowing

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9

hire purchase

an asset is sold to a company which agrees to make fixed repayments over an agreed time period; the asset belongs to the company once the final payment is made

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10

leasing

obtaining the use of equipment or vehicles and paying a rental or leasing charge over a fixed period, this avoids the need for the business to raise long-term capital to buy the asset; ownership remains with the leasing company

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11

equity finance

permanent finance raised by companies through the sale of shares

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12

long-term loans

loans that do not have to be repaid for at least one year

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13

debentures (or corporate bonds)

bonds issued by companies to raise debt finance, often with a fixed rate of interest

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14

rights issue

existing shareholders are given the rights to buy additional shares at a discounted price

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15

business angel

an individual, usually with business experience, who directly invests part of their wealth in new and growing businesses

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16

crowdfunding

the use of small sums of capital from a large number of individuals to finance a new business venture

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17

microfinance

the provision of very small loans by specialist finance businesses, usually not traditional commercial banks

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