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paper 2 - Coggle Diagram
paper 2
raising finance
internal +external sources of finance
These are how businesses get money to finance growth, to overcome working capital / cash flow problems
internal
advantages
dont have to pay back
no time limit
from inside the business
retained profits
cheap and flexible
profit is shareholdersso they need convining it is being used effectively
Usually okay infrequently
Control of working capital and cashflow
advanatages and disadvantages
Working capital measures the amount of money the business has to pay day-to-day expenses
Working capital = current assets – current liabilities
Businesses need to be aware of their working capital and ensure that they have enough cash to survive
Stock and debtor control – arranging appropriate credit terms
Liquidity – need to manage assets to ensure that the business has sufficient liquidity (ease of converting assets to cash)
Stock needs to be valued correctly
sale of assets
allows business to devlop more profitable ventures
allows firm to increase profitability
long term affect can decrease profitabiloty
Sale and Leaseback
allows business to recieve cash payment improving cash flow
But have to rent the asset which may reduce profit long term
If cash used to buy more profitable assets the cost of rental is covered
external
share capital (long term)
Limited companies can issue shares
Share holders receive dividends
loan capital (long term)
Government assistance – selective and takes form of grants generally
Mortgages – used to purchase property. Up to 25 years Long term loans – provided by specialist organisations
Debentures – long term loan to the business at an agreed fixed % of interest repayable on a stated date. Up to 25 years.
medium term
bank loans
leasing
hire purchases
short term
bank overdraft-agreed limit, stated time period
Debt factoring – business receives immediate payment for credit sales
Trade credit – suppliers allow time period before money is due
external
liability and finance
cash flow forecasts
choosing the right source of finnace
retained profits need agreemnet from all sharwholders
external sources are more expensive as you have to pay back with insurance
source of finance also depends on what the finance ais being used fo and how long
financial planning
sales forecasting
sales revenue and costs -calculating
break even
budgets
purpose
types
variance analysis
difficulties
managing finance
profit
gross
net
operating
resource management
external influence
business objectives and strategies
business growth
decision making strategies
influence on business decisions
assessing competitivness
managing change