Workbook 7: Raising Finance

• Long-term sources of finance, finances the whole business over many years
• Medium-term sources of finance, finances major projects or assets with a long-life
• Short-term sources of finance, finances day-to-day trading of the business
• Internal sources of finance is money that comes from within a business
• External sources of finance is money that comes from outside the business
• Retained profits (I) is the amount of a business's net income that is kept within its accounts, rather than paid out to shareholders
• Asset disposal (I) is the selling of products owned by the business.
• Owners capital (I) is money invested by the owner of a business. This often comes from their personal savings
• Bank loans (E) is money borrowed from a bank by a business and is paid off with interest over an agreed period
• Debt factoring (E) is when a business raises cash by selling their receivables to a factoring company (third party)
• Share issues (E) is a procedure where business sell shares to new or existing shareholders (Usually used by ltd who want to become a plc, flotation, it is recommended if they have a value of over £50 million)
• Bank overdrafts (E) is when a business uses more money than they have in the bank account. This means the balance is in minus figures, so the bank is owed money back
• Venture capitalists (E) is an individual who invests money in a start-up business in return for a share of the business or profits (they tend to focus on larger investments, >£1m)
• Crowdfunding (E) is the contribution of a crowd, who take a small stake, towards a fundraising target (usually via the internet)
• Leasing (E) is a way of renting an asset that the business requires, where monthly payments are made.
• A cashflow forecast is a key financial management tool that estimates a company's future cash levels, and its financial position
• A cashflow problem is when a business does not have enough cash to be able to pay its liabilities
• Net cashflow = Cash inflow - cash outflow
• Cash inflow is money going into a business
• Cash outflow is money leaving the business
• Net cash flow is the amount of money produced or lost by a business during a given period
• A closing balance is the amount of money available to a business at the end of a period
• An opening balance is the amount of money available to a business at the start of a period
• Cash flow position is the amount of cash that a company has at a specific point in time
• Cash flow is the money moving in and out of a business
• Example of a cashflow forecast:

  A) Opening balance

  B) Closing balance

  
• Why produce a cashflow forecast?


  • Advanced warning of cash shortages
  • Makes sure the business can afford to pay suppliers and employees on time
  • Provides reassurance to investors and lenders that the business is being managed properly and it trustworthy