IGCSE Business Unit 5 - Sources of Finance

LOCK THE FUCK IN!!!!

Start-up Capital

Cash to set up the business

Working Capital

Cash to pay day-to-day expenses

Non-current Assets

resources a business owns which will be used for more than one year; hard to convert into cash

Short-term Finance

Immediate funding; helps maintain positive cashflow; quick

Long-term Finance

Used to buy fixed assets; takes longer; expensive

Retained profit

Internal

Profit after dividends, expenses, tax etc kept within the business

Pros: Doesn’t need to be repaid

Cons: Takes a long time → Opportunity costs

Sales of existing assets

Internal

Assets that are no longer used/useful to the business

Pros: Better use of capital; doesn’t increase debt burden

Cons: Takes a long time; selling price may be insufficient to business

Personal Savings

Internal

(speaks for itself)

Pros: Instant; no need to be repaid

Cons: Increased risks; may be insufficient 

Overdrafts

External, Short term

Banks allow businesses to spend more money that they have up to an agreed limit

Pros: Cheaper than short term loans

Cons: May have to repay fast; charged interest at daily rate

Debt Factoring

External, Short term

Specialist agencies ‘buy’ the claims on debtors of business for immediate cash

Pros: immediate cash is made
Cons: not 100% of value will be returned

Trade Credit

External, Short term

Buying supplies without paying the cash up front/pay later

Pros: No interest, better cash position (since they are paying later)

Cons: Don’t pay on time → supplier may refuse to give discounts/sell more to business

Bank Loan

External, Long term

Hire Purchase

External, Long term

Leasing

External, Long term

Mortgage

External, Long term

Debenture

External, Long term

Alternative

Alternative

(Side note to self) Abbreviations of short term & long term external sources of finance

SHORT - TCDFO (tspmo)

Trade Credit, Debt Factoring, Overdraft

LONG - The bank(1) hired(2) Mort(3) and Deb(4) to help fix the leasing(5) and sharing issue(6)

Bank Loan, Hire Purchase, Mortgage, Debenture, Leasing, Issuing Shares

this is so 白痴

Issuing shares

Selling ownership of the company for money

Pros: Can earn large amounts quickly; no interest paid

Cons: Loss of (some) control; Shareholders expect dividends to be paid