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