Financial information and decisions

• Start-up capital is the amount of money needed to start a business
• Working capital is the amount of money needed by the business to pay day-to-day expenses
• Capital expenditure is the purchase of non-current assets
• Business's need finance to set up the business
• Business's need finance to pay working capital
• Business's need finance to purchase non-current assets
• Business's need finance to research into new products and markets
• Long-term finance is the provision of finance over a long period of time
• Short-term finance is loans or debts a business expects to pay back within a year
• Internal sources of finance come from owners' savings
• Internal sources of finance come from retained profit
• Internal sources of finance come from sale of non-current assets
• Retained profit is the profit that remains after all expenses, tax and dividends are payed
• Retained profits are reinvested into the business
• A business can sell or lease unwanted non-current assets
• Leasing an asset means renting it from someone else
• Advantage of sale of non-current assets:

  No direct cost to the business
• Advantage of sale of non-current assets:

  Often raises large amounts of money
• Disadvantage of sale of non-current assets:

  Leasing charges are likely to increase each time the lease is renewed
• Disadvantage of sale of non-current assets:

  Costs of business will increase because they have to pay leasing charges to the new owner
• Advantage of retained profit:

  Can be used to purchase new assets
• Advantage of retained profit:

  Can be used to finance expansion plans
• Internal sources of finance come from use of working capital
• Cash balances are use of working capital
• Reducing inventory levels are a use of working capital
• Reducing trade receivables are a use of working capital
• Cash balances can be used as a source of finance
• Reducing inventory levels will leave the business with more money to spend on other things
• By reducing the time a customer has to pay back a business on credit, businesses cash balances increase
• Overdraft is an agreement between a bank and a business to allow them to borrow money over their current account limit
• Trade receivables are the amount of money owed by customers for goods and services purchased on credit
• Debt factoring is selling trade receivables to improve a business's liquidity
• A bank loan is money lent to the business which has to be paid back with interest
• Leasing is getting to use a non-current asset for a period of time
• Hire purchase is the purchase of an asset by paying a fixed repayment amount per time period
• A mortgage is a long-term loan used for land or buildings
• A debenture is a bond issued by a company to raise long-term finance
• The share issue is a source of permanent capital available only to limited liability companies
• Equity finance is permanent finance provide by owners of a limited liability company
• Micro-finance is small amounts of capital given to entrepreneurs where finance is hard to obtain