Sources of finance

• 3 internal sources of finance

  • Retained profit
  • Net current assets
  • Sale of assets
• What is retained profit?

  Profits kept in the business and not distributed to owners or shareholders - retained for reinvestment
• Pros and cons of retained profit

  Pros - Doesn't have to be repaid - no interest payable

  Cons - Not available to new businesses & many companies may not make sufficient profits
• What are net current assets?

  Money immediately available to business - can be used to cover day-to-day expenditure.
• Pros and cons of net current assets

  Pros - Quick way to raise money.

  Cons - May have to accept a lower price for its inventory
• What is sale of assets?

  Selling assets to give the business cash.
• Pros and cons of sale of assets

  Pros - Good way to raise money from assets that are no longer needed

  Cons - Takes time to sell - may sell for lower than actual price
• 13 external sources of finance

  • Owner's capital
  • Loans
  • Crowd funding
  • Mortgage
  • Venture capital
  • Debt factoring
  • Hire purchase.
  • Leasing
  • Trade credit Grants
  • Donations
  • Peer to peer lending
  • Invoice discounting
• What is owners capital?

  Money owned by the owner after assets are sold and creditors are paid
• What is debt factoring?

  It involves selling the business's invoices to a third party (whom is specialised in collecting debts)
• What is venture capital?

  It is a finance provided by a business professional in exchange for a share of the business ownership
• What is crowd-funding?

  It involves raising money contributions and funds from a large number of people (can be done online)
• What is leasing?

  Consists in an upfront payment followed by regular payments. Will not own the product at the end of the payment period
• What is trade credit?

  Credit extended by one trader to another for the purchase of goods or services.
• What is a grant?

  Sum of money given by the government for particular purpose
• What is invoice discounting?

  Invoice discounting is a financing method where a company sells its accounts receivable to a third party at a discount in order to receive immediate cash.
• What is peer-to-peer lending?

  Lending money from one business to another
• What are donations?

  Voluntary contributions of money, goods, or services to a person or organization.