Business finance - needs and sources

• Capital


  Day to day running expenses
• Start-up capital


  Initial capital used in the business
• Working capital


  Capital needed by the business to pay day-to-day expenses
• Personal financial planning


  1. Forecasting future expenses and savings

  2. Evaluating current financial situation

  3. Managing liquidity - access to funds to cover any short-term cash deficiencies
• Personal financial plan


  A plan that specifies personal financial goals and describes the steps needed to achieve them
• Money management


  Decisions regarding new investments, managing liquid and non-liquid assets, and allocating and timing short-term investment instruments
• Accountants


  People responsible for keeping accounts as accurate as possible
• Business finance


  Money needed by a business
• Sources of business finance

  • Internal sources
  • External sources
• Reasons for business finance

  • Start-up
  • Expansion
  • Takeover/acquisition
• Cash flow


  A financial statement that reports the sources and uses of cash over time
• Capital expenditures


  Money spent on fixed assets
• Operating expenditures


  Money spent on day-to-day expenses not involving the purchase of long-term resources
• Internal sources of finance

  • Retained profit
  • Selling fixed assets
  • Selling stocks
  • Owner's savings
• External sources of finance

  • Bank loans
  • Factoring of debt
  • Grants and subsidies
  • Microfinancing
  • Crowdfunding
• Short-term finance


  Finance for 1 year or less, usually arranged by a bank
• Trade credit


  Commercial financing that benefits businesses by allowing buyers to obtain goods with payment due at a later date with a charge
• Credit unions


  Non-profit financial cooperatives that often offer accounts with fewer fees and lower interest rates compared to commercial banks
• Long-term finance


  Finance for more than a year, usually for big projects or company expansion
• Long-term finance


  • Diversifies capital portfolio
  • Provides flexibility and funds capital needs
  • More stable to fund capital needs and debt management
  • Improves company productivity
• Hire purchase


  Allows a business to buy a fixed asset and pay for it in monthly installments including interest
• Leasing


  Allows a business to use an asset without purchasing it, with monthly leasing payments made to the provider
• Factors that affect choice of finance include time period, amount needed, legal form and size of business, and level of risk involved
• Factors that banks and shareholders consider when providing finance include cash flow forecast, purpose of loan, security, gearing ratio, future prospects, share price and dividend history