revision - internal + eternal sources of finance

Micro business

business with 1-9 employees

small business

business with 10- 49 employees

short-term

money used within a year

medium- term

money that will be used within 1-5 years

long-term

money that will be used in more than 5 years

owner's capital

the money that the owner owns

sources of internal finance

personal savings

redundancy

inheritance

redundancy payment

money that a company pays to workers who have lost their jobs because they are no longer needed

Advantages of owners capital

no taxes

no interest applied

free will to be used however wanted

disadvantages of owners capital

can fall into debt

limited amounts

takes time to save for a business

Advantages of retained profit

Doesn't have to be paid back and there is no interest to be paid

expansion of business through RP

disadvantages of retained profit

limited amount of RP

risk in failure of investing too much

cannot be returned to owners

dividents

payments by companies to their shareholders

Assets

resources owned by a business

Sale of assets

when a business sells off its unwanted or unused assets to raise funds

Advantages of sale of assets

provides money too be used in the long-term

disadvantages of sale of assets

important assets might be sold

takes a long time to sell

loss of money in terms of value

Advantages of family and friends

There is no interest charged

Money might not have to repayed

might get support from them

disadvantages if family and friends

may have to repay money

may charge interest

may not support your interest

bank loan

money borrowed from a bank which has to be paid back with interest over an agreed payment period

advantages of bank loans

• Usually quick to arrange.

• Can borrow money for varying lengths of time.

• Can borrow large sums of money with low rates of interest

disadvantages of bank loans

high interest rates

hard and very formal to arrange

perform credit score check on you

collateral

security against borrowed money (e.g home,company,etc.)

overdraft

Occurs when money is withdrawn from a bank account and the available balance goes below zero

venture capitalists

investors who invest in established business but ask for a higher percentage of equity

Grants

money given by the government ( one- time only) to support the idea of a business or an established business

Private Limited Company (Ltd)

company owned by a private shareholder whose shares cannot be sold to the general public via stockexchange

public limited company (plc)

companies owned by public shareholders who sell their shares to the public

unlimited liability

The owner is personally and fully responsible for all losses and debts of the business

limited liablity

The shareholders are only liable for the money that they had put into the business and not overall debts

similarties between ltds and plcs

both have limited liabilty

Incorporated (registerd with a company house) which raises company image

both businesses are owned by shareholders

differences between ltds and plcs

LTDS: ltd's are owned mainly by family and friends doesn't sell shares to the public disclose limited info

PLCS:

owned by public shareholders have less privacy

have to disclose detailed info

pros of ltds

they have limited liablity

have massive economies of scale

promotes company's image makint it easier ti take-over companies

cons of ltds

if you sell more than 50% percent of the company ownership is lost

conflicts between shareholders(family & friends)

cannot sell shares to the public( limiting share capital raised)

pros of plcs

massive amounts of share capital raised through selling to the public

easier for share holders to sell and buy shares

cons of plc

- expensive to form a PLC

- increased reuglations on finances

- risk of hostile takeover