business: finance
Zoom in to make it clearer then just dag to move to different parts of the mindmap
- Created by: BethaniTeddy
- Created on: 11-05-16 08:39
View mindmap
- Finance
- long term
- debentures - long term borrowing with the promise of repaying the amount lent with a set amount of interest
- very structured method which allows the business to know how much debt has to be paid back at the end
- usually secured onto assets of the business such as property, if the debt isn't paid the debenture holder will claim the property
- no longer a popular method of finance for businesses
- bank loan- an amount of money is borrowed from the bank, then repaid over a set period of time
- easy to set up and large amounts of money can be borrowed with a structured repayment term
- interest is payable, if repayments aren't kept up the business risks getting a poor credit rating or becoming bankrupt
- issuing shares- a share in the business is sold, this money is used to purchase new assets
- no need to repay money invested, cheaper than a loana nd some business can raise large sums of money this way
- need to repay the shareholder a share of future profits and its risky for the shareholder, the investment may be lost if the business fails
- ownership also means some influence over how the business is run- the original owner may lose control
- mortgage - long term loan provided by a bank in order to buy property
- only method available to buy property, structured repayments over long term
- large sums of interest charged and can take a long time to repay debt
- government grants =- money given to a business by the government, used to help finance new projects
- no need to repay the grant
- limited funds available, may be restrictions on what the money can be used for
- hire purchase- an item bought on finance, repayments are made
- flexible method - can hand back the item if no longer required and payment will stop
- high interest often charged, item doesn't belong to the business until the end of term
- venture capital - venture capitalists invest in small, risky businesses e.g. new business start-ups
- can raise money from them even when banks have refused to lend to a business
- risky for the venture capitalist, the vc may want some control over the business
- debentures - long term borrowing with the promise of repaying the amount lent with a set amount of interest
- short term
- selling assets - items owned by the business are sold
- the business has to have something worth selling
- the business is using money it already has so no need to take out a loan or pay interest
- the business may sell something they later need
- overdraft - drawing more money from the bank than the account holds
- very quick to arrange
- a good short term solution to a cash flow problem
- only suitable for smaller amounts and has to be repaid in a short amount of time with interest
- retained profit - money kept in the business by the owners
- no need to pay interest
- could have been invested elsewhere, earning a higher profit
- may not have enough retained profits and shareholders may become unhappy if it means lower dividend payments for them
- owner's funds - money put into the business by the woner
- no need to pay interest
- could have been invested elsewhere, earning a higher profit
- owner may not have enough funds to meet the needs of the business
- trade credit - items are bought from suppliers on a 'buy now pay later' basis
- gives the business more cash to use in the immediate future
- can only be used to buy certain goods, bills have to be settled in 30,60 or 90 days
- debt factoring - the company sells a debt to a debt factoring company who pays the business a smaller sum than they were owed
- allows the business to get money for debts that might not have been paid
- saves the business time chasing customers
- time consuming and the business receives l;ess money than it was originally owed
- leasing - used to help obtain new equipment, the business rents items from the owner
- cost of the assets is spread over its life and there's no need to find a lump-sum of money to purchase it
- may be more expensive than buying the asset, the owner will want to make a profit
- the business does not own the asset so it does not appear on the balance sheet
- selling assets - items owned by the business are sold
- long term
Comments
No comments have yet been made