Topic 3: Account & Finance - Coggle Diagram
Topic 3: Account & Finance
Source of finance
Role of Finance in business
To purchase fixed assets: properties and equipment; intended for business operations
Payments for daily operations (direct and indirect costs)
savings, family, friends. Main source of finance for sole traders and for partnerships
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
Short-term (0-12 months)
Allow business to temporarily overdraw on its bank account.
Allows the business to buy now, and pay at a later date (ie from banks)
Recouping the money owed by debtors through a financial service.
financial services for poor and low-income clients
Medium-term (1-5 yrs)
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.
Short or medium term finance from commercial lenders (banks, ...)
Wealthy individuals who invest in a business start-up.
Financial gifts from the government to support business activity.
provided by government to reduce cost of production although the focus is to provide extended benefits to society,
High-risk capital in form of loan or shares. Must convince the venture capitalist first.
Long-term (>5 yrs)
Money raised from selling shares in the company.
most typical forms of long term loans
Type of Cost
Costs that have an element of both FC and VC (electricity)
Costs specifically attributed to the production or sale of a particular good or service. (VC)
Cost of production that changes in proportion to the level of output (raw materials..)
Costs that do not directly link to the production or sale of a specific product (FC)
Costs that do not vary with the level of output (rent...)
Sales Revenue = Price x Quantity
Refers to money coming into a business from its various business activities
A method to find out the minimum level of sales to just start make profit