Business-Booklet D
What is Internal Finance?
Money that comes from within the business
Define Retained Profit
profit kept in the business, for reinvestment in the business
Advantages of Retained Profit
No interest
Avoid debt
Available immediatly
Disadvantages of Retained Profit
Amount limited
May not make suffiecient profits
Define Net Current Assets
Money readily available current assets
Assets that can be turned into cash
Advantages of Net current Assets
Quick way of raising money
Manage cash flow
Disadvantages of Net Current Assets
May have to accept a lower price for assets
Define Sales of Assets
Sell assets to make money
Advantages of Sales of Assets
Good way of selling assets not being used anymore
Disadvantages of Sales Of Assets
Time consuming
Loose money
What is external finance?
Money that comes from outside the business
Define Owners Capital
Owners personal savings used to finanace the business.
Advantages of Owners Captial
No interest
No loss of ownership
Disadvantages of Owners Capital
Limited amount available
Personal financial liability
Define loans
Money lent that is payed off with interest over an agreed period of time
Advantages of loans
Easy to budget
No loss of ownership
Disadvantages of loans
Interest
Secured to asset, lead to repossession
Define Crowd Funding
Raising funds online by using people to invest small amounts of money into the business
Advantages of Crowd Funding
No interest
Help business grow
Disadvantages of Crown Funding
Partial loss of ownership
May not reach target
Define of Venture Capital
Funds from investor in return for a share of ownership.
Advantages of Venture Capital
Advice
Support
Funds your company
Disadvantages of Venture Captial
Loss of ownership
Conflict of decisions
Define Mortgages
Loan secured on a property
Advantages of Mortgage
No loss of ownership
Affordable
Disadvantages of Mortgages
Interest
Assets could be seized
May need to budget
Define Debt Factoring
Selling the businesses invoices to a 3rd party.
Advantages of Debt Factoring
Improves Cash Flow
Disadvantages of Debt Factoring
Can alienate customers
Impact negatively on profit margins
Define Hire Purchase
Business obtain assets by paying a deposit then making regular monthly payments.
Advantages of Hire Purchase
Own asset at the end
Spreads out cost
Avoids large lump sum
Define Leasing
Renting of asset
Not owned at the end
Advantages of Leasing
Spread cost
Leasing company responsible for maintanance & repairs
Disadvantages of leasing
Likely to cost more
Never own asset
Define Trade Credit
Business obtains raw materials and stock and pay later
Advantages of Trade Credit
No loss of ownership
No interest
Helps cash flow
Disadvantages of Trade Credit
Must be payed on time, short term
Define Grants
Government payments to businesses which are given with conditions
Advantages of Grants
Doesnt need to be repayed
No interest
No loss of ownership
Disadvantages of grants
Must meet certain condition
Long time to apply
Define donations
Source of finance for non profit organasations e.g. charity
Advantages of Donations
No need to repay debts
No loss of ownership
Disadvantages of donations
Usually small amount
Not reliable
Define peer to peer lending
Lending money to individuals in return lenders recieves interest on top of amount lent out.
Advantages of Peer to Peer Lending
Interest rate lower then banks
Useful for businesses that can't secure finance from bank
Disadvantages Peer to Peer Lending
Amount may be limited
Short term financev
Define Invoice Discounting
Take out loan from invoice discounting company
Advantages of Invoice Discounting
No interest
No need to repay
Disadvantages of Invoice Discounting
Negatively impacts cash flow
Loss of Profit