2.1

• Internal finance refers to money from within the business.
• External finance is money from an external source.
• Peer-to-peer lending is a method of external finance where money is lent to peers instead of using a bank, which occurs online.
• Crowdfunding is a method of external finance where people put money into fundraisers to use in businesses.
• Commercial banks provide external finance by offering funding, loans, overdrafts and mortgages.
• Business angels are a source of external finance where big shareholders give funding for a business to use in an investment, and they get a share of the profit.
• Other businesses can finance a company by taking over or joining the business.
• Family and friends can provide funding for a business through internal finance, generally with no stake lost in the business.
• Retained profit is a method of internal finance where profit is put back into the business.
• Sale of assets is a method of internal finance where unwanted assets are sold to raise money.
• Owners capital is a method of internal finance where funding is provided from the owners personal savings.
• Loans are a method of finance where the amount borrowed must be repaid over a clearly stated period of time, in regular instalments.
• Mortgages are a method of finance where a bank lends money at interest in exchange for taking title of the debtor's property.
• Debenture is a special, long-term loan.
• Share capital is the part of the capital of a company that comes from the issue of shares.
• Ordinary shares are a share entitling its holder to dividends which vary in amount and may even be missed, depending on fortunes of the company.
• Preference shares are a share which entitles the holder to a fixed dividend, whose payment takes priority over that of ordinary share dividends.
• Deferred shares are shares with no right to dividends either for a set period or until certain conditions are met.
• Venture capital is capital invested in a project in which there is a substantial element of risk, typically a new or expanding business.
• Overdraft is a deficit in a bank account caused by drawing more money than the account holds.
• Leasing is a contract by which one party conveys land.
• Grants are a method of finance where a business is given a sum of money to facilitate a goal or incentivize performance.
• Trade credit allows businesses to receive goods or services in exchange for a promise to pay the supplier within a set amount of time.
• Liabilities are the legal debts a company owes to third party editors.
• Limited liability reduces the personal exposure to financial risk.
• In limited liability, the owner doesn’t have to pay any risks.
• Unlimited liability occurs when one or more individuals are liable for their companies debts.
• 1.  If a limited company becomes insolvent, suppliers may not get paid, customers may lose their deposits and guarantees will be worthless. After-sales will no longer be available. Employees may find themselves redundant and perhaps not being paid for work done.
• Cashflow forecast

  • Lists all the likely receipts (cash inflows) and payments (outflows) over a future period of time
• Forecast

  • A calculation or estimate of future events, especially coming weather or financial trend
• Cash in - cash out = net cash flow

  Opening balance + net cash flow = closing balance
• Outflows

  • Payments to suppliers
  • Wages & salaries
  • Tax on profits
  • Repayment of loans
  • Dividends paid to shareholders
  • Interest on loans
  • overdraft
• Inflows

  • Cash sales
  • Receipts from trade debtors
  • Sale of fixed assets
  • Interest on bank balance
  • Grants
  • Loans from bank
  • Share capital invested
• Relevance of a business plan

  • It is important to carefully plan setting up a business
  • Research has shown those who prepare a business plan are more likely to succeed
  • Investors ae not likely to put money in if there is not a clear and concise vision of future progress and profitability
• A good business plan

  • Forces owners to take an objective, critical and unemotional look at the whole business idea
  • Provides a 'road map' that shows a clear direction for the development of the business
  • Provides an action plan, identifying key tasks that must be done to reach goals that improve chance of success
  • Flags up potential problems so solutions can be found
  • Helps to show lenders and investors that the owner is cautious, responsible, serious and credible.
• An executive summary

  Overview of the business start-up

  Briefly describes opportunity, marketing, sales strategy, operations and then finance
• The business opportunity

  A description of the product or range of products to be made, the quantity to be sold and the estimated price
• Buying and production

   where the business will buy its supplies, production methods to be used, the cost of production.
• Financial forecasts

   a variety of financial forecasts need to be included, such as a sales forecast, a cash-flow forecast, a profit and loss forecast and a break-even
• The business and Its objectives

  the name of the business, its address, its legal structure and its aims and

  objectives.