Edexcel AS Business Theme 2 Topic 2.1 Raising finance

Asset

Something of value to a business such as a physical item or non-physical, such as patent.

External finance

Finance raised from outside of the business.

Internal finance

Finance raised from within the business.

Owners capital

This is the money invested by the owner in the business, this may have come from their own personal savings.

Retained profit

Profit from a previous year that is saved and could be used to reinvest into the business.

Fixed costs

Costs that do not change with level of output. Costs that have to be paid regardless of the number of sales e.g. rent or salaries.

Variable costs

Costs that change in line with the amount of business e.g. the cost of buying raw materials.

Working capital

the finance available for the day-to-day running of the business.

Angel investors

Investors who back a business before it has opened its doors, taking a full equity risk, i.e. if it fails the angel investor will lose everything invested.

Collateral

An asset used as security for a loan. It can be sold by a lender if the borrower fails to repay a loan.

Factoring

Selling invoices to a finance company for them to issue cash upfront against them (usually around 90%). Helps with cash flow problems.

Gearing

The amount of funding in a business which is lent from a bank, versus funding which has been acquired from shareholders.

Liquidity

The ability of the company to pay their debts when they are due.

Loan collateral

The loan will need to be secured on something worth equivalent value such as premises or a building.

Public Limited Company (plc)

a company with limited liability and shares, which are available to the public. Its shares can be quoted on the stock market.

Share Capital

Business finance that has no guarantee of the control of the business and its potential profits.

Stock market

A market for buying and selling company shares. It supervises the issuing of shares by companies. It Is also a second-hand market for stocks and shares.

Venture capital

High risk capital invested in a combination of loans and shares, usually in a small dynamic business.

Bankrupt

When an individual is unable to meet personal liabilities.

Creditors

Those owed money by a business - for example, suppliers and bankers.

Limited liability

Owners are not liable for the debts of the business; they can lose no more than the sum they invested.

Sole trader

A one-person business with unlimited liability.

Unlimited liability

Owners are liable for any debts incurred by the business, even if it requires them to sell all their assets and possessions and become personally bankrupt.

Best case

An optimistic estimate of the best possible outcome - for example, if sales prove much higher than expected.

Business plan

A document setting out a business idea and showing how it is to be financed, marketed and put into practice.

Cash flow forecast

Estimating future monthly cash inflows and outflows, to find out the net cash flow

Just-in-time

Ordering stocks so that it arrives just before it is needed, just in time i.e. having no stockpiles to cover for late deliveries.

Overdraft

Short term borrowing from bank. This business only borrows as much as it needs to cover its daily cash shortfall.

Worst case

A pessimistic estimate assuming the worst possible outcome - for example, sales are very disappointing.

Asset

Something of value to a business such as a physical item or non-physical, such as patent.

External finance

Finance raised from outside of the business.

Internal finance

Finance raised from within the business.

Owners capital

This is the money invested by the owner in the business, this may have come from their own personal savings.

Retained profit

Profit from a previous year that is saved and could be used to reinvest into the business.

Fixed costs

Costs that do not change with level of output. Costs that have to be paid regardless of the number of sales e.g. rent or salaries.

Variable costs

Costs that change in line with the amount of business e.g. the cost of buying raw materials.

Working capital

the finance available for the day-to-day running of the business.

Angel investors

Investors who back a business before it has opened its doors, taking a full equity risk, i.e. if it fails the angel investor will lose everything invested.

Collateral

An asset used as security for a loan. It can be sold by a lender if the borrower fails to repay a loan.

Factoring

Selling invoices to a finance company for them to issue cash upfront against them (usually around 90%). Helps with cash flow problems.

Gearing

The amount of funding in a business which is lent from a bank, versus funding which has been acquired from shareholders.

Liquidity

The ability of the company to pay their debts when they are due.

Loan collateral

The loan will need to be secured on something worth equivalent value such as premises or a building.

Public Limited Company (plc)

a company with limited liability and shares, which are available to the public. Its shares can be quoted on the stock market.

Share Capital

Business finance that has no guarantee of the control of the business and its potential profits.

Stock market

A market for buying and selling company shares. It supervises the issuing of shares by companies. It Is also a second-hand market for stocks and shares.

Venture capital

High risk capital invested in a combination of loans and shares, usually in a small dynamic business.

Bankrupt

When an individual is unable to meet personal liabilities.

Creditors

Those owed money by a business - for example, suppliers and bankers.

Limited liability

Owners are not liable for the debts of the business; they can lose no more than the sum they invested.

Sole trader

A one-person business with unlimited liability.

Unlimited liability

Owners are liable for any debts incurred by the business, even if it requires them to sell all their assets and possessions and become personally bankrupt.

Best case

An optimistic estimate of the best possible outcome - for example, if sales prove much higher than expected.

Business plan

A document setting out a business idea and showing how it is to be financed, marketed and put into practice.

Cash flow forecast

Estimating future monthly cash inflows and outflows, to find out the net cash flow

Just-in-time

Ordering stocks so that it arrives just before it is needed, just in time i.e. having no stockpiles to cover for late deliveries.

Overdraft

Short term borrowing from bank. This business only borrows as much as it needs to cover its daily cash shortfall.

Worst case

A pessimistic estimate assuming the worst possible outcome - for example, sales are very disappointing.