raising finances 2.1

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  • Raising finance 2.1
    • Internal finance
      • Owner's capital
        • sometimes called owner's equity
        • shows the stakes the owner has in the business
        • depends upon the owner's personal savings
      • retained profit
        • re-investing profits to help the company grow
        • A well run business will continually re-invest in staff, stock, equipment etc.
        • pro-no interest to pay               con-when it's gone there is no more
      • sale of assets
        • when a business sells items it already owns, especially beneficial when it is no longer used
        • pros-improves efficiency or increases capacity utilisation
        • cons- will get back less than what you paid for it because it is used
    • external finance
      • sources of finance
        • family and friends
          • pro-intertest free loan, trust their investors
          • con-cause tension and ruin relationships
        • peer-to-peer funding
          • pro-intertest free loan, trust their investors
          • con-unsecured loans without going through a bank
        • business angels
          • pro-take a share of your business in return for finance, also knowledge
          • con-could end up taking over and pull out their finance
        • banks
          • con-very strict and charge interest
          • pro-loan a start up business and provide an overdraft to help with cashflow issues
        • crowd funding
          • pro-large amounts of people online fund a project
            • con-must have an incentive
          • con-must have an incentive
        • other businesses
          • pro-build strong relationships
          • cons-loose trade if untrustworthy
      • methods of finance
        • loans
          • renting money from the bank, affected by interest rate. Requires a business plan or collateral
        • share capital
          • quick way to gain finance, control how many shares they give out but loose control of business.
        • venture capital
          • invest large sums of money into a business in return for shares, and high rate of return. Need a strong business plan so hard for start up firms.
        • overdraft
          • small amount of extra cash for a short period, high charges/interest rates
        • leasing
          • leasing equipment means you don't pay for maintenance costs, costs more overtime and looks unattractive on business plans
        • trade credit
          • between businesses, sell goods before buying it
        • grants
          • financial help for businesses to help overcome unemployment
    • liability
      • limited liability
        • business owner is only liable for original investments-sperate legal identities
        • can sell shares, protection on owners belongings, business and owner are sperate assets
          • finance options: retained profits, sale of assets, shares, leasing, trade credit venture capital
      • unlimited liability
        • owner pays all debts
          • easier to secure finance to a bank because you show risk of loosing own stuff
        • finance options: business loans, private investors, credit cards, crowd funding, trade credit, owners savings, overdraft
    • planning
      • persuades lenders that the business can make enough profit to pay interest on any loans, attract investors, give owners some direction, set targets and monitor effectiveness
        • includes; a cash flow forecast, cash management and a liquidity/ ability to pay bills, 4 P's of marketing, HR, production costs
          • cash flow uses- monitors cash in and out of a business, see where cash surpluses/ shortages so suitable finance can be arranged
          • cash flow limitations- biased to impress suppliers, easy for mistakes to happen if not regularly updated and it takes a lot of time
  • pro-large amounts of people online fund a project

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