Business management

Finance 3.1 and 3.2 and 3.3

Capital expenditure

Refers to finance spend on fixed assets for long term function that can be used repeatedly. They provide collateral for the business, add production capacity, improve efficiency and can replace damaged equipment.

Revenue expenditure

Refers to the expenses incurred for the daily operations of a business and spent on payment of indirect costs. It can generate value for the business and helps motivate workforce and improve productivity.

Personal funds

Entrepreneurs own savings. Useful for start ups. Usually insufficient.

Retained profit ‘

Keeps after paying dividends to shareholders. Used for capital expenditure. Doesn’t incur interest charges

Sale of assets

Sale of dormant assists to raise finance.

Share capital

Money raised for selling shares. Huge amount of finance. Don’t have to pay back

Loan capital

Obtained from commercial lenders. Paid back in instalments.

Mortgages and business development loans

Mortgages- loan for purchase of property. Interest is payable and assets are at risk if the business does not make repayments as planned BDL- highly flexible made to specific needs of borrower to expand business.

Debentures

Long term loan certificates issued by business. interest payments. Debenture holders have no ownership. Increases gearing ratio because of long term debt.

Overdrafts

overdraw on it’s bank account. Suitable for large cash outflow problems. High rate of interest, flexible repayable on demand.

Trade credit

Pay back on a later date. Helps Manage cash flow and inventory. Interest charges

Crowdfunding

Raising finance from large number of individuals to finance a business venture. Helps start ups raise money.

Leasing.

Between leasing company (lessor) and customer (lessee). Hires assets from lessor. Repairs and maintenance us the responsibility of the lessor. Classified as a business expense so it reduces tax.

Hire purchase

Pay creditors in instalments. Defaults on agreement-asset can be repossessed. Interest charges apply.

Micro finance providers

Entrepreneurs of small low income areas. Enables disadvantages members to gain finance. Job creation, helps accessibility. However, there is limited finance

Considerations before investing

Return on investment, business plan, track record, people.

size and status of firm

Easier to raise finance from wider sources from large and establish firm. Large firms can obtain cheaper finance due to EOS

Purpose of finance

Intended for daily running or replacement of non current assets

Amount required

Large amounts then IPO, small amounts then retained profit

external factors

Factors beyond control of business

Duration

Whether you need short or long term finance

Business angels

Wealthy individuals who invest their own money to provide finance for firms unable to secure sufficient finance. Owner might loose control if bought out.

Fixed costs

Pay regardless of production or sales. Independent of the level of output.

Variable costs

Change in proportion with level of output. No production -VC are 0

Direct costs

Attributed to individual project without which costs would not be incurred.

Indirect costs

Cannot be traced to production or sales

Not indentured with business activity.

Revenue

Money that business earns from sale of goods and services

Revenue streams

Money coming into a business from various business activities