Business finance
Government grant
Don't have to be repaid
Given to small or new firms that qualify
Must meet a strict criteria
Money has to be spent in a specific way
Trade credit
Businesses may give a firm one or two months to pay for their purchases
Allows the business to get the money they need if they don't have it already
If the payment is late they could end up with a large fee
Overdraft
Lets you go over your bank balance
High interest
Bank can cancel it at any time
If it isn't paid off then assets may be taken
Loans
Quick and easy
Repaid with interest
Assets can be repossessed if not paid back
Friends and family
Mortgage
Money lent can go straight into business
May not have to be repaid
Individual may want a share in profits
Loan used to buy property
Property used as collateral
Relatively low interest
Hire purchase
Purchased by paying a deposit then paying instalments while they use the product
Allows longer use of the product
Allows them to get something earlier on
Retained profits
Profits that have been kept and invested back into the business
Larger companies may have less as shareholders may require a larger dividend
Selling assets
Cash can be made from selling assets
This could be assets that aren't in use
Limited money can be made as you can't sell too many assets
New share issues
Having people buy more shares from your business
Less control in the business
Shareholders expect dividends
Forecasting cash
Cash
Money that a company can spend immediately
Cash flow - The money that goes into and out of the business
Net cash flow is the difference between the inflows and the outflows
Businesses can make profit but will go bust without cash
Cash flow forecasts predict when a firm may face a liquidity
Lists all inflows and outflows
Will see when short term sources of finance may be needed
Timings of payments can affect it, for example if the customers are given 60 days credit to pay
Improving cash flow
Poor cash flow
Not enough cash to pay expenses
Staff may not get paid on time, this means resentment and demotivation
Suppliers sometimes offer discounts for punctual payment, the business may miss out on these
Creditors may not be payed on time, meaning less leniency in the future
Creditors may take legal action to acquire the money they are owed, forcing a business to sell assets
Poor sales - If there's a lack of demand then the business will have not enough money coming in
Overtrading - Too many orders may be taken on and the business spends money on more raw materials and staff, but the money doesn't come in quick enough
Poor decisions - The firm could produce new products or expand into new markets but not make the money they predicted
Insisting on being payed immediately or less generous credit terms
Reschedule payments to suppliers and negotiate better credit terms
Destocking, inflows will be the same but less money will be spent on raw materials
Arranging an overdraft
New sources of finance
Increasing inflows