5.2 sources of finance
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- Created on: 04-10-20 15:38
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- 5.2 sources of finance
- reasons businesses need finance
- establishing a new business
- funding expansion
- marketing
- running the business
- recruitment
- sources of finance
- trade credit: a business sells goods after agreeing to pay for them at a later date.
- adv: business can have goods before paying, no interest is paid on time, can help with cash flow problem.
- disadv: goods must be paid for even if they don't sell, interest is charged is payment is late.
- overdraft: a bank makes available to a business more money than they have in their account
- adv: meets short term cash flow problem, interest only paid on amount owned, repayment is only due when business closes or overdraft isnt needed.
- disadv: interest charged for every day money is owed which could be expensive.
- taking on a new partner: the new partner invests some of their savings in the business
- adv: new partner can bring new skills, no need to repay, no interest.
- disadv: loss of ownership, partnerships can take on new partners
- sale of assets: goods etc owned by the business are sold to raise money
- adv: no need to repay, no interest to pay, good if selling off old stock, equipment.
- disadv: may be difficult to sell, may take time to sell.
- loan: a set amount of money, borrowed for a set period of time.
- adv; repayment is made in fixed sums over a period of time usually monthly, the loan is available immediately after agreement.
- disadv: interest must be paid, the business may need to give the lender security.
- retained profit: money not distributed to the owners (shareholder) as profit
- disadv: business might not have made profits, owners will not get profit as income.
- adv: no need to repay, no interest to pay
- share issue: new shares are sold to raise more money
- disadv: owner loses ownership, shareholders have a say in everything, shares can only be sold by limited companies.
- adv: ne investors can contribute alot, no need to repay, no interest to pay.
- owners capitals: the owners savings are invested.
- disadv: owner risks savings, owner may not have enough savings
- adv: no need to repay, no interest to pay, doesn't affect ownership and control.
- crowdfunding: money is donated or invested by sponsors or people invest to become part-owners of the business
- adv: new supporters can contribute a lot of money to the business through loans, donations, no need to repay, no interest to pay.
- disadv: interest will be paid if the money is raised through a loan, ownership will be shared if the money is raised through investment.
- trade credit: a business sells goods after agreeing to pay for them at a later date.
- short term: owners capital, sale of assets , trade credit.
- medium: owners capital, sale of assets, retained profit, bank loan, crowdfunding.
- long term; owners capital, sale of assets, retained profit, bank loan, crowdfunding, partner, share issue.
- reasons businesses need finance
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