BTEC Business - D1
- Created by: Kaicee05
- Created on: 14-05-23 15:52
Internal Sources of Finance
Retained Profit - Profit kept in the business to fund future expenditure.
+ No interest charge, available immediately, no loss of control, helps to avoid debt
- Amount available may be limited, reduces payment to shareholders
Net Current Assets - Shows money available in the business to find day to day expenditure.
+ Encourages business to manage cash flow effectively
- Pressure on customers as shorter credit terms, lower stock affects customer needs
Sale of assets - Selling an asset owened by the business in order for immediate cash.
+ No interest charges, reduces capital tied up in assets, get rid of things no longer in use
- Amount received may not be true reflection of price, can increase cost if need to be leased back
External Sources of Finance
Owner's Capital - Money invested in the business from personal savings.
+ No interest payments or need to repay, high level of commitment
- Amount is likley to be limited, could cause friction if multiple owners
Loans - Money borrowed from banks for a set period and specific purpose. Interest is payable.
+ Regular payments make budgeting easy, control isn't lost
- Interest is charged, rates can fluctuate, might be secured aganst an asset.
Crowd Funding - Attracting investement from investors who invest small amounts.
+ Raise finance from investors, no interest paid
- Partial loss of owenershiop, no guarantee it'll attract investment
External Sources of Finance
Mortgages - Long term loans secured against an asset, eg. house. Interest is payable.
+ Repaid over prolonged period, control is not lost
- Interest charged, rates can fluctuate, asset can be seized if payment missed
Venture Capital - Investement from an experienced entrepreneur in return for equity.
+ Finance provided by a professional, risk takers, see potential in a high risk investement
- Partial loss of control, may cause conflict over the way the business is ran
Hire Purchase - Paying to use an asset in parts. Remains property of seller until final payment.
+ No lump sum, regular payments make budgeting easy, spreads cost
- Amount is likley to be higher, only suitable for low cost assets
External Sources of Finance
Leasing - Involves paying to use an asset in installments. Spreads cost over useful life.
+ Supplier is responsible for maintenance, no lump sum, cost is spread
- Amount is likley to be higher, payments are ongoing, never actually own the asset
Trade credit - Period of time offered by suppliers to allow customer to buy now and pay later.
+ Delays need to pay, no loss of control
- Potential loss of discount offered for cash payments, only suitable for short term.
Grants - Lump sum provided by the Government for a specific purpose.
+ No need to repay, no interest charge, no loss of control
- Lengthy application process, only rewarded if certain conditions are met
External Sources of Finance
Donations - Sums of money given voluntarily to charity or social enterprise.
+ No need to repay, no interest charges, no loss of control
- Small amounts only, can be unpredictable
Peer to peer lending - Involves one person lending money to another in return for interest.
+ Interest rates may be lower than bank, fixed rates make budgeting easier
- Amount may be limited, may only be available for short period of time
Invoice discounting - Reductions offered to customers making a product or service cheaper.
+ No need to repay, no interest charge, no loss of control, reduces cost so increases profit
- Often only available if paid in cash, can affect cash flow
External Sources of Finance
Debt Factoring - Selling a businesses debt to a third party to receive cash. Company pays the business a percentage of money owed and takes responsibility for debt.
+ Speeds up cash flow from debt, sompany takes on risk of bad debt
- Only receive a percentage of amount owed which reduces profit, can give wrong impression to customers.
Comments
No comments have yet been made