Business F291 unit 2

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  • UNIT 2... Cash Flow and Sources of Finance.
    • Who needs to use a cash flow forecast?
      • Seasonal factors make cash hard to manage.
      • Useful for a growing business.
    • The need for finance.
      • STARTING UP -
        • Purchase raw materials.
        • Pay wages.
        • Need money to invest in long term assets (buildings and equipment)
        • Day-to-day bills (water and electricity)
      • GROWING -
        • Once established there will be income from sales.
        • May not be growing as fast as they like.
        • Profits to be kept in the business to be able to grow.
        • May have a cash flow problem due to changing market conditions.
        • Customer may refuse to pay for goods - HUGE gap in inflows.
        • LARGE ORDER - need additional raw materials.
    • Internal and external sources of finance.
      • EXTERNAL -
        • Share capital
          • Private investors.
          • Venture capitalists - willing to take a risk.
        • Loan capital
          • Short, medium or long term bank loans.
            • Bank will want collateral (security)
          • Overdraft - Short term solution.
      • INTERNAL -
        • Existing capital (retained profit)
        • Share holders.
    • How much finance can a business obtain?
      • Types of business - LIMITED COMPANY (share capital)
      • Stage of the development of the business.
      • State of the economy.
    • Advantages of sources of finance.
      • Reinvested Profit - no asociated cost.
      • Sale of assets - sell and leaseback and financial development without borrowing.
      • Bank overdrafts - can borrow only when it needs to.
      • Trade credit - obtain goods without having to pay for them immediately.
      • Venture capital - invest in smaller businesses.
    • Disadvantages of sources of finance.
      • Reinvested profit - May be limited constrain rate of growth.
      • Sale of assets - loose the asset.
      • Bank overdrafts - expensive - want back within 24 hours.
      • Trade credit - other businesses may be reluctant to trade with them if the goods arent paid in time.
      • Venture capital - want part of ownership + conribute to the running of the business.


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