raising finances 2.1
- Created by: taylorgargett
- Created on: 24-04-19 16:41
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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
- Owner's capital
- 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
- pro-large amounts of people online fund a project
- other businesses
- pro-build strong relationships
- cons-loose trade if untrustworthy
- family and friends
- 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
- loans
- sources of finance
- 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
- owner pays all debts
- limited liability
- 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
- includes; a cash flow forecast, cash management and a liquidity/ ability to pay bills, 4 P's of marketing, HR, production costs
- 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
- Internal finance
- pro-large amounts of people online fund a project
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