BUSINESS FINANCE

capital expenditure,

Money spent on fixed assets which will last for more than one year. Hold long term to help you reach your goal.

revenue expenditure,

money spent on daily operations, are short term

internal sources of finance,

money obtained from within the business and is easier to access by businesses that are already establised

personal funds (IS),

key source of finance for sole traders, comes from personal savings and investing to maximise control

advantages of personal funds,

Maintain control and grow at the entrepreneur's pace, exact amount of money needed is known

disadvantages of personal funds,

poses large risks to owners, savings may not be sufficient and causes strain.

retained profit (IS),

source of long term finance as the profit that remains after a business pays out dividends and may be reinvested back for growth purposes.

advantages of retained

profit,cheap-no interest charge, permanant source of finance , flexible

disadvantages of retained profit

,startups do not have retained profit, if the profit is low it will not be sufficient enough for expenditure and growth

sale of assets (IS),

when a business sells of unwanted and unused assets to raise funds. assets are then no longer required by the business

Advantages of sale of assets,

good way of raising cash from no capital, no interest

Disadvantages of sale of assets,

only avaliable to established businesses, very time consuming

External finance,

Money raised from sources outside the business, like a bank loan.

share capital (ES),

money raised from selling shares, also known as equity capital. returns are based on levels of profit so it is high risk

preference shares (ES),

when owners get a fixed amount of a company's profit, it is low risk, as they are paid back first in the event of bankruptcy

IPO (ES)

,when a private company goes public, gains money yet looses part ownership

Loans (ES)

,borrowing money from a finacial institution, long term and expensive due to interest

Overdraft (ES)

,the extension of credit from an institution to its customer when a trasaction is executed with insufficient funds, short term

trade credit (ES),

a business to business agreement where a customer can purchase goods

subsidy (ES)

,benefits given to an individual or institution by the government, used to reduce costs

government grants (ES),

given for specific projects or research, has a very competitive application process

debt factoring (ES),

a financial agreement where the debt factor takes on responsibility for collecting the debt owed to a business

leasing (ES),

a source of finance that allows a firm to use an asset without having to purchase it for cash

Venture capitalist (ES),

form of private equity financing that is provided by venture capitalist firms to high-potential companies

business angels

,highly affluent individuals who provide capital or start up costs in return for part ownership

gearing,

the relationship between share capital and loan capital

factors influencing choice of finance,

purpose, cost, status/size, amount required, external environment and flexibility

short term finance,

needed to cover the day to day running of a business, less risk, 1 year timeline

medium term finance,

used to purchase assets such as equipment or vehicles, more risk, 1-5 year timeline

long term finance,

spent on large projects that will pay back over longer periods of time, high risk as insurance is needed, 5-30 yer timeline

fixed costs,

costs that remain constant no matter how production changes, stays constant for usually a year. like rent and liscenses

variable costs,

costs that change as production increases or decreases. like raw materials or shipping costs

direct costs,

costs that can be identified clearly to the production of a specific cost, linked to a particular product or process

indirect costs/ overheads,

costs that are not clearly identified, expenses that are not traceable. like audit fees and legal expenses

revenue 

revenue= income earned or generated from the sale of goods and services TR=RxQ

Profit

profit=the financial gain from an investment, business, or product, calculated as total revenue minus total costs P=TR-TC

profit and loss account,

summarises revenue, costs amd expenses and shows the net income while providing information on how a company can generate profit.

parts of a PL account,Interest, Dividends, Sales Revenue,Expenses, Tax, COGS, Retained Profits

balance sheet,

reports on the assets and liabilities and shareholders' equity. shows exactly what the assets are and how they are financed.covers what the business's assets and its liabilities are, how it has funded this situation and its net assets

parts of a balance sheet,

Equity (SC+RP), fixed assets, current assets, Working capital, net fixed assets, equity

intangible assets,

fixed assets that lack physical substance or physical value yet are valuable to a firm

patents,

provide investors with the exclusive rights to manufacture, use, control and sell their intentions. gives legal protection to the patent holders, usually lasts 20 years.

goodwill,

refers to the positive attributes that relate to a business. usually arises through a merger or aquisition. includes a good customer relations, skilled workforce and good reputation

copyright laws,

protect the creator with the exclusive right to protect the production and sale of their creation. includes musicians, artists, authors and film producers, only applies to original ideas. last 50-100 years after creators death

trade marks,

a recognisable symbol, phrase or design. is something that is officially recognised and identifies a product or business.

COGS,

= opening stock + purchases-closing stock