Why do businesses need finance?
Starting up
Day-to-day running
Expansion
Internal growth
Takeovers
Purchasing equipment/machinery
What are the two main types of business finance?
Internal finance (from within the business)
External finance (from outside sources)
What is short-term finance?
Finance paid back within one year.
What is long-term finance?
Finance paid back over a period greater than one year.
What are three examples of internal sources of finance?
Retained profits
Net current assets
Sale of assets
What are three examples of external sources of finance?
Loans
Crowdfunding
Venture capital
What are retained profits?
Profit reinvested back into the business instead of being paid out as dividends or salaries.
What are the advantages of using retained profits?
No interest or repayment required.
Helps business growth.
What are net current assets?
Current assets minus current liabilities.
Used to cover day-to-day expenses.
What is the sale of assets?
Selling unused business assets like land or machinery for cash.
Flashcard 11
What is one advantage and one disadvantage of selling assets?
Advantage: Immediate cash injection.
Disadvantage: Loss of assets that could be useful later.
What is owner’s capital?
Money invested by the business owner from personal savings.
What is a loan?
Money borrowed from a bank with agreed interest and repayment terms.
What is venture capital?
Money invested by individuals or groups in exchange for a share of the business.
What is crowdfunding?
Raising small amounts of money from many people, usually via online platforms.
What is debt factoring?
Selling invoices to a third party at a discount to receive cash quickly.
What is hire purchase?
Paying for an asset in installments; ownership is transferred after all payments are made.
What is leasing?
Renting an asset for a monthly fee; the business never owns the asset.
What is trade credit?
Buying goods and paying for them later under agreed terms.
What is a grant?
Money given by the government or organizations, usually with specific conditions.
What is invoice discounting?
Borrowing money against unpaid invoices to improve cash flow.
What is peer-to-peer lending?
Lending money directly from individuals to businesses without using a bank.
: What are donations used for?
A critical finance source for charities and non-profits.
