Business finance UNIT 5

working capital

finance needed by a business to pay its day to day running expenses (wages, raw materials, electricity)

capital expenditure

finance spent on fixed assets

retained profit

profit kept in the business after owners have been given their share of the profit

sale of existing assets advantages and dis

raises finance

does not become debt for the business

time consuming to sell

overdraft

allows businesses to spend more than what is in their bank account, short term and varies with each month

cheaper than loans

interest rates can vary

factors that affect choice of source of finance

purpose

time period

amount needed

legal form and size

control

risk

hire purchase

buying an asset and the business will own it

cash flow

the cash inflows and outflows of a business over a period of time

closing balance

net cash flow + opening balance

how to improve cash flow

attract more investors, cut costs, develop more products, bank loan, delay payments to suppliers, leasing, ask debtors to pay more quickly

income statement

financial document of the business that records all income gained or lost by the business