Finance 3.2 sources of finance

Capital

wealth in the form of money or other assets owned by a person or organization or available or contributed for a particular purpose such as starting a company or investing:

Assets

property owned by a person or company, regarded as having value and available to meet debts, commitments, or legacies

Liabilities

a company's financial debt or obligations that arise during the course of its business operations; settled over time through the transfer of economic benefits including money, goods or services

Capital Expenditure

money spent to acquire fixed assets in a business

fixed assets

type of capital expenditure that includes machinery, land, buildings, vehicles, and equipment; can be used as collateral because of their high fixed costs

Revenue Expenditure

money spent on the day-to-day running of a business; include payments or expenses such as rent, wages, raw materials, insurance, and fuel

internal sources of finance

this can include: personal funds, retained profit, and the sale of assets

Personal funds

an internal source of finance that comes from personal savings it can prove difficult because of the risk of possibly investing life savings or needing more than what this source can offer; a source of finance for sole traders that comes mostly from their personal savings

Retained profit (earnings)

an internal source of finance; profit that remains after a business has paid corporation tax to the government and dividends to shareholders; also known as ploughed-back profit to be reinvested into the business

Sale of assets

an internal source of finance that happens when a business sells off its unwanted or unused assets to raise funds

external sources of finance

This can include: share capital, loan capital, overdrafts, trade credit, grants, subsidies, debt factoring, leasing, venture capital, and business angles

Share (equity) capital

external source of finance; money raised from the sale of shares of a limited company

Shareholders

buyers of shares that may be entitled to dividends when profits are made

Stock exchange

the shares of public limited companies are sold in a special share market, which does not happen when private limited companies sell their stocks

Loan (debt) capital

external source of finance; moneys sourced from financial institutions such as banks, with interest charged on the loan to be repaid

Overdraft

external source of finance; when a lending institution allows a firm to withdraw more money that it currently has in its account;

Trade credit

external source of finance; an agreement between businesses that allows the buyer of goods or services to pay the seller at a later date

finance lease

a financial agreement where at the end of the leasing period the business is given the option to purchase the asset

Venture capital

external source of finance; financial capital provided by investors to high-risk, high-potential start-up firms or small businesses; include investment banks; they own a stake in the business and expect dividends

Business angel

external source of finance; highly affluent individuals who provide financial capital to small start-ups or entrepreneurs in return for ownership equity in their business

Short-term finance

money needed for the day-to-day running of a business and therefore provides its needed working capital; lasts for one year or less

Long-term finance

funding obtained for the purpose of purchasing long-term fixed assets or other expansion requirements of a business; time period of between more than five years to around 30 years

Finance

the control of how money is spent, especially for a company or government

Flexibility

the ease with which a business can switch from one source to another

State of the external environment

the factors that the business has no control of