Entrepreneurs need to raise money (finance) to get started and run their own business. Finance will be needed for a range of products.
- Wages for staff
- Utility bills such as electricity, water and gas
- Rent of premises
- Stock and other supplies
Sources of Finance - Short term
Short term sources of finance are sources of money for businesses that are borrowed or invested typically for more than a year. You need to know the following:
Overdraft - borrowing money from a bank by drawing more money than is actually in a current account. High rates of interest can be charged for this facility.
Trade credit - where a supplier allows a period of time before the business needs to pay for any supplies received. This can help the cash flow position of a business.
Sources of Finance - Long term
Long term sources of finance are sources of money for businesses that are borrowed or invested typically for more than a year. You need to now the following:
Personal Savings - Money set aside and not spent by individuals
Loans - Borrowing which has to be repaid with interest over a period of time
Retained profit - Profit which is kept back in the business and used to pay for investment in the business.
Venture Capitalist - Money invested in the business by an individual who hopes to sell their shares to make a profit
Share capitalist - the value of a company owned by shareholders. These receive any profits in the form of dividends