business

• Medium-term external sources of finance


  • Higher purchase
  • Leasing
  • Loans
  • Peer-to-peer lending
  • Business angels
• Higher purchase


  acquire high-cost assets by making a deposit and then monthly installments
• Higher purchase


  • Provides large amounts of finance is easier to receive than a traditional loan
  • Requires interest to be paid
  • Asset is not owned outright until full repayment
• Leasing


  renting an asset from a leasing company, asset is returned when lease period end
• Leasing


  • No need to pay large costs
  • Maintenance under the leasing company
  • Asset is never owned
  • Can be costlier than purchasing over time
• Loans


  Sums borrowed from banks to be paid back over a period immediate ownership of the asset
• Loans


  • Versatile, catering to everything from startup costs to business expansions
  • Paid back over a long period
  • Come with interest
  • Can be challenging to secure
• Peer-to-peer lending

  Funds are loaned from individuals facilitated by online platforms
• Peer-to-peer lending

  • Can be paid back over long periods
  • More accessible than traditional loans, especially for those with limited credit history
  • Can come with higher fees and interest rates
• Business angels


  invest in businesses, expecting a share of the profits
• Business angels

  • Can inject funds swiftly
  • Bring valuable expertise to the table
  • No direct repayment or interest
  • Take a share of profits and often want a say in business decisions
• Short-term external sources of finance

  • Bank overdrafts
  • Crowdfunding
  • Trade credit
• Bank overdrafts


  when an account's balance dips below zero, addressing short-term cash flow challenges
• Bank overdrafts


  • Quick to arrange and flexible in use
  • Can be costly due to high fees and interest rates
  • Cannot be used to borrow large sums
• Crowdfunding


  Taps into the collective power of many individuals, each investing small amounts in return for the finance provided
• Crowdfunding

  • Secures funds quickly and with no upfront fees
  • Serves as a promotional tool
  • Risk of not meeting the funding goal or having the idea copied
• Trade credit

  An arrangement between businesses where goods or services are supplied with the understanding that payment will follow at an agreed upon later date
• Trade credit


  • Particularly beneficial for businesses needing inventory without the immediate burden of payment
  • No interest to be paid
  • Typically easy to arrange
  • Very short-term solution
  • Only gives access to limited amounts of finance
  • Late payments can strain business relationships
• Direct debit


  an electronic payment customers authorize businesses to collect funds from their accounts
• Direct debit


  • Commonly used for recurring payments like subscriptions and membership fees
  • Can be employed for one-time payments
• Debit and credit cards are widely used for online payments
• A direct debit - form of electronic payment where a customer authorizes a business to collect funds from their account
• Payment Technologies are usually more convenient and secure however there are transaction fees and fraud can be an issue
• Revenue (Turnover, Sales)

  Selling Price Per Item x Quantity Sold
• Gross Profit

  Sales-Cost of Sales
• Net Profit

  Gross Profit-Expenses
• Net Current Assets

  Current Assets - Current Liabilities
• Net Assets

  Total Fixed Assets +Net Current Assets
• Gross Profit Margin

  Gross Profit/Sales *100
• Net Profit Margin

  Net Profit/Sales *100
• Current Ratio

  Current Assets / Current Liabilities
• Liquid Capital Ratio

  (Current Assets - Stock) / Current Liabilities
• Break Even

  Fixed Costs/(Selling Price -Variable Cost Per Unit)
• Margin of Safety


  Actual Sales - Break Even Point
• Variable Costs


  Output x Variable Cost Per Unit
• Total Costs

  Fixed Costs + Variable Costs
• Net Inflow / Outflow

  Total Inflow - Total Out Flow
• Closing Bank Balance


  Opening Balance + Net Inflow/Outflow
• Internal sources of finance


  • Owner funds
  • Sale of assets
  • Retained profits
  • Net current assets
• Owner funds

  • Most new owners supply most of the start-up capital themselves because profits have yet to be made
  • No interest is payable
  • If the enterprise is successful, the owner may in time get back their investment with a profit
  • The owner may not have sufficient savings to invest in the enterprise
  • If the enterprise fails, the owner may lose their investment