Raising finance theme 2 2.1

internal finance?

Internal sources of finance refers to the funds used within a business to fund expansion or growth

owners capital?

When an entrepreneur  invests their own money in a business e.g. from personal savings

retained profit?

Profit kept within the business from profit after tax to help finance future activity 

sales of assets?

A method of raising short term finance by disposing of business assets in return for cash

types of internal finance

-Personal savings

-Retained profit

-Sale of assets

Pros of personal finance?

cash is quick to access

does not need to be paid back

more motivation potentially

Cons of personal finance?

loss for business is loss for owner

can be more limited

pros of sale of assets?

no intrest

cons of sale of assets?

loss of assets that may be needed in the future

might not be easy to sell

pros of retained prfot?

no intrest

cons of retained profit?

limited amount

shareholders may demand dividends

external finance?

A method of raising short term finance by disposing of business assets in return for cash

share capital?

Money raised from the sale of shares which is used to fund the future activities of a business

venture capital?

Investment from an established business person or business into a new business in return for a percentage equity in the new business 

methods of external finance short term and medium term?

overdraft

leasing

grants

trade credit

long term methods of external finance?

loans

share capital

venture capital

limited liability?

An investor’s liability/financial commitment is limited to the total amount invested or promised in share capital 

unlimited liability?

The owners of a business are responsible for the total amount of debt of the business

pros of limited liability?

easier to get loans

business plan

A document that describes how an entrepreneur proposes to set up a new business 

cash flow forecast?

The process of estimating the size and timing of cash inflows and outflows within a business 

what may be in a business plan?

-overview of a businesses plans

-goods/services of a business

-objectives of a business

importance of a business plan?

-helps determine the amount of finance required

-helps investors decide if they should invest

examples of cash inflows?

when customers pay for a good

when a loan is recieved

when assets are sold

cash outflow examples?

wages

salaries

supplies