Sources of finance 1.3
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- Created on: 15-03-18 18:26
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- Sources of finance:
- Long term
- Personal savings
- Doesn't need to be repaid
- There is a limit to the amount an owner can invest.Using your own money to finance your business may put a strain on your personal life since may not have enough money left over to cover your living costs. You should try to leave a contingency fund,.If your business were to fail, you could lose your home and other personal possessions.
- Doesn't have to be repaid. No interest is charged. You will have full ownership of the company and 100% of the profits
- Doesn't need to be repaid
- Share capital
- In exchange for part ownership in business & share of future profits.
- profit will be paid out in dividends to shareholders. You can lose control over the business
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- In exchange for part ownership in business & share of future profits.
- Venture capital
- From professional investors.
- Advantage: Business expertise. venture capital can provide a valuable source of guidance and consultation. This can help with a variety of business decisions, including financial management. Making better decisions in these key areas can be vitally important as your business grows.
- DisadvantageVenture capitalist will own part of the business.Loss of control
- From professional investors.
- Retained profit
- Profit kept back in business
- Bank loans
- Repaid with interest
- Can be expensive due to interest payments. Bank may require security on the loan
- Set repayments are spread over a period of time which is good for budgeting
- Repaid with interest
- Personal savings
- Short term
- Trade credit
- Period of time to pay bill
- Advantage: Pay creditors at a later stage allowing goods to be sold. No interest charged if money is paid within agreed time
- Disadvantage company may have poor credit history. Discount given for cash payment would be lost. Businesses need to carefully manage their cash flow to ensure they will have money available when the debt is due.
- Period of time to pay bill
- Overdraft
- Interest charged, flexible, possible solution to cash shortage.
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- Interest charged, flexible, possible solution to cash shortage.
- Trade credit
- Long term
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