2.1 Raising Finance
2.1.1 Internal Finance
owners capital- savings from the owner invested into the business
retained profit- profit after tax that is put back into the business
sale of assets- one-off boost to finance such as spare land
2.1.2 External Finance
sources of finance
family and friends - loan or grant from family
business angels- invest money for a share of ownership
peer to peer funding- lend money to individuals
banks- money is given from the bank to be paid back overtime
crowd funding- raised money from a large amount of people who each contribute little amounts
methods of finance
loans
share capital
venture capital
overdrafts
leasing
trade credit
grants
2.1.3 Liability
Implications of limited and unlimited liabilty
Finance appropiate for limited and unlimited
2.1.4 Planning
relevance of a business plan on finance
cash flow forecast
uses and limitations of a cash flow forecast
cheap
can be limited
high opportunity cost
fast
cheap
not available to start ups
conflict, can be used for dividends
often limited amounts
fast
cheap
unlimited businesses
limited
public limited company
private limited company
unlimited
sole trader
partnerships
choosing finance
the cost of finance
the risk involved
the security available
voting control
unlimited- personally accountable for the companies liabilty, financially and legally
limited- not personally accountable for the finances or legal actions of a business
why use one?
helps finance providers asses the business model
providers structured assessment of opportunities and risks
essential analysis of competitive positions of the business and market attractivness
helps determine the amount and type of finance required
why produce a cash flow?
to track finances
to predict the future
to plan for the future
to track previous progress
limitations
some financial information will be based on estimates
external factor can change and can't be controlled
can focus to much on cash flow and not enough time on customer needs
problems
sales prove lower than expected
customers do not pay up on time
costs can prove higher then expected
imprudent cost asumptions