Internal sources of finance
- Personal funds, retained profit, sales assets
Personal funds
Retained profits: How much profit a company gets after taxes and paying dividends to businesses
Sales assets: sell unused assets to raise finance
- Old machinery, land or buildings
External sources of finance
Share capital
- Companies go public and people buy their shares
- Shares worth money when you sell it
- You can get large amounts of capital
- Disadvantage: time consuming and expensive to prepare (i.e. go public)
- There is no guarantee that people will buy your shares
Loan capital
- Borrow money from banks
- Banks make money by interest from repayment installations
- Bank loans, mortgages, debentures
- Debenture: type of bond or debt instrument
Overdrafts
- Short term loan, pay with money you don’t have
- You can acquire interest
Trade credit
- Like visa
- “buy now pay later”, pay within 30 days or get interest. Let’s you pay with money you don’t have (i.e. vegetables for restaurants, can’t purchase food supplies without a trade credit)
- If people don’t pay the credit, you can have debt collectors
Crowdfunding
- Debt based
- Equity based (get shares)
- Reward based (kickstarter)
- Donations based (i.e. charitable and tax deductible)
- Low success rate, but quick way to get easy money
Leasing
- Rent an asset over a contracted period of time
Microfinance providers
- Aimed at financial services from disadvantaged entrepreneurs
- Smaller businesses get money, helps eradicate poverty
Business angels
- Shark Tank, Dragon’s Den
Sustainability: things that affect financing
SPACED
S: size of firm
P: purpose of firm
A: Amount required
C: Costs
E: External influence (i.e. are you in a recession)
D: Duration required
1.2 Glossary of Key Terms
Business angels: wealthy people who risk their own money in hopes to gain more money
Crowdfunding: get small amounts of money from many people
External sources of finance: money that investors give to you. Comes from outside your organization
IPO: initial public offering: it’s refers to the finance a company makes when they go public and sells shares for the first time on the stock exchange
Internal sources of finance: your own money
Leasing: allows you to have fixed assets without large capital expenditures
Loan capital: you borrow money from banks
Long term finance: a source of finance that will supply you for more than 5 years
Microfinance: Small businesses can’t get loans from banks, microfinanciers give external finances to these people
Microfinance providers: give microfinance money
Overdraft: Like visas; let’s you spend money that you don’t have in your bank account
Personal funds: your own money
Retained profit: profit you reinvest into the business
Revenue expenditure: business spendings on ever day and regular operations (wages, utilities, raw materials)
Sale of assets: the money you get when you sell your assets
Share capital: money you get by issuing shares on the stock exchange
Share issue: a public limited company
Short term finance: sources of finance needed for daily running of the business (i.e. revenue expenditure)
Trade credit: buy now pay later