CH19 - Business Finance

• Why do businesses need finance?

  Initial funds so they can start up a business, working capital to run the business, investement capital to expand the business
• Factors to consider when looking at finance:

  • How much money needed
  • How long do you needed for (Time)
  • What the finance will be used for
  • The affordability of repayments
  • Whether or not personal or business assets are available as security
  • Whether or not the business owner is willing to give up a share of ownership, perhaps through taking on a partner or selling shares
• Internal methods of finance:

  • retained profits
  • Selling assets such as land or machinery
  • reducing stock
• Stock is a type of asset sold to raise finance. Stock includes the business holdings of raw materials, work in progress and finished goods.
• An overdraft facility is where a bank allows a firm to take out more money than it has in its bank account.
• Trade credits are when suppliers deliver goods now and are willing to wait for a number of days before payment.
• Owners who invest money in the business can be their savings for sole traders and partners, and share capital for companies.
• Loans from banks or family can be a mortgage.
• A hire purchase or leasing agreement involves making monthly payments for the use of equipment such as a car, where leased equipment is rented and not owned, and hired equipment is owned after the final payment.
• A grant from the Welsh Government can be an external method of finance.
• New ways of raising money:

  • crowdfunding - business organisations will ask strangers to invest in the business