business management chapter 3

long term bank loan

long term bank loan

fixed rates provide more certainty but can become expensive (require security or collateral for loan)

investment

purchase of fixed assets, causes cash flow of business to initially be negative

revenue expenditure

spending on all costs and assets, other than fixed assets (physical or tangible items that a company owns and uses in its business operations to provide services and goods to its consumers), includes wages and salaries

capital expenditure

purchase of assets that are expected to last for more than one year such as buildings or machinery

working capital

capital needed to pay raw materials
- current assets - current liabilities

internal sources of finance

raised from business's own assets or from profits left in business

external sources of finance

raised from sources outside the business usually with the help of a provider

bank overdrafts

bank allows business to overdraw on its account by writing cheques to a greater balance in the account. overdrawn amount always agreed on in advance, has a limit beyond which the firm can go. high interest. if bank becomes concerned about stability of customers, can "Call" in overfraft and force business to pay it back

trade credit

delaying the payment of bills for goods and services received without receiving immediate payment

leasing

obtaining of vehicles or equipment and paying a rental charge over a fixed period of time, avoids the need for business to raise long-term capital, periodic payments, risk of having unreliable or outdated equipment is reduced as leasing company will repair and update

medium term bank loans

up to periods of 5 years with fixed interest

crowdfunding

use of small sums of capital from many individuals to finanace a new business venture

debentures

bonds issued by companies to raise debt finance, often with a fixed rate of interest (up to 25 years)

venture capital

for small companies not listed on stock exchange to gain long term investment funds

microfinance providers

provision of small loans by specialist finance businesses

business angels

individual usually with business experience who directly invests part of their wealth into a new and growing business, some loss of ownership

fixed costs

remain fixed no matter the level of sales or output (might change in long term but not short term)

variable costs

costs that vary with output (if nothing is produced or sold, variable cost = 0)

direct costs

costs that can be identified with each unit of production, evidently and explicitly associated with output or sale of a certain good (short term may be variable or fixed)

indirect costs

costs which cannot be identified with a unit of production and cannot be traced back or allocated to a cost centre

revenue

value of sales made during trading period (selling price x quantity sold)

debtors

customers who have bought products on credit and will pay cash in the future

current liabilities

debts of the business that will usually have to be paid within a year

current assets

value of all assets that could reasonably be expected to be converted to cash within a year

goodwill

arises when a business is valued or sold for more than the balance sheet value of its assets

working capital cycle

refers to duration between organisation paying for production costs of a goods or service and it receiving the cash from customers