Source of Finance by hcj


									Introduction about
 sources of finance
Financial Resources
 What the business have available it could be cash,
    securities, creditors , loan facilities and possessed.
   There are number of ways in which a business can
    raise the finance necessary to purchase assets and fund
    working capital. The method chosen depends upon:
   The amount of money required by the business
   The risk that the business represents to potential
   The time period over which the loan is required
Internal sources of finance
 Funds generated from an organisations own resources
  e.g. retained profit, sales of perhaps 4%.
 Existing capital can be made to stretch further. The
  business may be able to negotiate to pay its bills later
  or work at getting cash in earlier from customers.
 Nothing soothes a difficult cash situation better than
  profit. It is also the best and most common way to
  finance investment into firm’s future. Research shows
  that over 60% of business investment comes from
  reinvested profit.
External sources of finance
 If the business is unable to generate sufficient funds
  from internal sources then it may need to look to
  external sources. There are two sources of external
  capital: loan capital and share capital.
 Loan capital: the most usual way is through barrowing
  from a bank this may be in the form of a bank loan or
  an overdraft. A loan is usually a set of period of time. It
  may be short term( one or two years), medium term
  (three to five years)or long term( more then five years)
  the loan could be paid back in instalments over time or
  at the end of the load period.
 Leasing : is when the business can make use of the
  resources to use them all the time:
Trade credit: suppliers agree to accept cash payment at a
  given dat in the future failure to pay on time can create
  problems for future orders. (short term under 1 year)
Own savings: most small business are set up with the owners
  savings they are interset free but will be lost if the fails
  banks will not provide aloan or overdraft unlesss the
  owners are sharing the financial risk.
Sole trader
 Sole Traders are individual people that runs their own
 business. As they are individual business sole Traders
 can keep all the profits they make, they are also
 responsible for anything that happens in the business.
 The lost and profit is both left to them. Sole Traders
 have unlimited liability, so if the business would go
 bankrupt then the owner goes bankrupt as well.
Sole Trader
Types of owner ship   Sources of finance
Sole trader           Friends and family External: they can
                      start of their business by barrowing money
                      from friends and family to start up the
                      business. This is a medium term because the
                      friends and family might run out of money
                      and would no longer able to support it.
                      Personal savings Internal: this could be the
                      savings a person had to start up their
                      business they could use this saving in
                      starting them off. This is a short term
                      because the owner will run out of their
                      personal savings soon there for this is up to 6
                      Bank loans: this is a long term because the bank
                      can offer the owner loans it will help the owner to
                      support his/her sole trader business. This is a long
                      term of up to 25 years.
 A Franchise is not a business ownership but someone
 who has paid to become part of an established franhise
 business (such as McDonalds, Subway) .A franchise
 could set up their own business it doesn’t matter about
 the type of ownership all they have to make sure of is
 that they agree on the contract to the Franchisor. The
 Franchisor provides training, advertising premises and
 support for the franchise.
Types of ownership   Sources of finance
Franchise            Loans: If you get a loan and decide to
                     get a franchise business then you would
                     pay that off by the money that the
                     company gives you and you could
                     decide how much you want to pay if off
                     by, if it 5 years or 10 years.

                     Trade Credit: this is a short term , trade
                     credit means when you buy goods or
                     services on acount e.g. buy something
                     and not making immediate payments.
 This is a small family business and there must be at
 least two shareholders but how ever there is no rules
 on maximum number. The business has limited
 liability. The shareholders in private limited company
 cannot sell or transfer their shares without offering
 them first to the other shareholders for purchase.
Types of ownership              Sources of finance

Private Limited Company (LTD)   Shares: If you are going to use the
                                businesses shares then you need to make
                                sure that nothing goes wrong when you will
                                be spending that money otherwise you could
                                lose the entire business if something goes
                                This is a long term because the investors has
                                to stay with the business for quite a while.

                                Bank loans: this is a long term this willl last
                                for couple of years but have to be paid back.
                                Family and friends: they could
                                always look up to their friends and
                                owner and expect some help from
                                them however they will not always be
                                in credit to help them out.
Financial Performance
 A personal measure of how well a firm can use assets
 from its primary mode of business and generate
 revenue. This term is also used as a general measure of
 a firm's overall financial health over a given period of
 time, and can be used to compare similar firms across
 the same industry or to compare industries or sectors
 in aggregation.
Budget and Cost
 Budget= A budget is a target for costs or revenue that a
  firm or department must aim to reach over a given
  period of time. Budgeting is like sitting a goal it is a
  technique for turning a firms strategy into reality.
 Costs = costs are critical elements of the information
  necessary to manage a business succesffully. Cost are
  divided into 3 categories: Variable costs, Fixed Costs
  and semi fixed costs.
Why business needs to control
costs and manage budgets.
 There is a lot of requirements to make a certain
 amount of profit. There are bank requirement,
 shareholders requirements, and it can even affect
 relationships with customers. Controlling costs is part
 of budgeting and the total sales, minus the costs gives
 you the profit.

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