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Topic 3: Account & Finance - Coggle Diagram
Topic 3: Account & Finance
Source of finance
Role of Finance in business
Capital Expenditure
:
To purchase fixed assets: properties and equipment; intended for business operations
Revenue Expenditure
:
Payments for daily operations (direct and indirect costs)
Source
Internal
Personal funds
:
savings, family, friends. Main source of finance for sole traders and for partnerships
Retained profit
:
income after taxation and dividends
Sale of assets
:
Selling unused assets (old machinery..) or sell any fixed assets.
Reduction of working capital
:
negotiate shorter billing times with your clients and longer payment terms with your suppliers
External
Short-term (0-12 months)
Bank overdrafts
:
Allow business to temporarily overdraw on its bank account.
Trade credit
:
Allows the business to buy now, and pay at a later date (ie from banks)
Debt Factoring
:
Recouping the money owed by debtors through a financial service.
Micro-finance
:
financial services for poor and low-income clients
Medium-term (1-5 yrs)
Leasing
:
Obtaining the use of equipment and paying a rental over a fixed period.
Hire & purchase
:
An asset is sold to a company which agrees to pay fixed repayments over a period of time.
Loans
:
Short or medium term finance from commercial lenders (banks, ...)
Business angles
:
Wealthy individuals who invest in a business start-up.
Grants
:
Financial gifts from the government to support business activity.
Subsidies
:
provided by government to reduce cost of production although the focus is to provide extended benefits to society,
Venture capital
:
High-risk capital in form of loan or shares. Must convince the venture capitalist first.
Long-term (>5 yrs)
Loans
Share capital
:
Money raised from selling shares in the company.
Debentures
:
most typical forms of long term loans
Type of Cost
Semi-Variable costs
:
Costs that have an element of both FC and VC (electricity)
Direct costs
:
Costs specifically attributed to the production or sale of a particular good or service. (VC)
Variable costs
:
Cost of production that changes in proportion to the level of output (raw materials..)
Indirect costs
:
Costs that do not directly link to the production or sale of a specific product (FC)
Fixed costs
:
Costs that do not vary with the level of output (rent...)
Revenue
Sales Revenue = Price x Quantity
Revenue stream
:
Refers to money coming into a business from its various business activities
Break-Even Analysis
A method to find out the minimum level of sales to just start make profit
Graph
Formula
Table
