Business F291 unit 2
- Created by: Victoria Prior
- Created on: 15-05-13 15:12
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- UNIT 2... Cash Flow and Sources of Finance.
- Who needs to use a cash flow forecast?
- Seasonal factors make cash hard to manage.
- Useful for a growing business.
- The need for finance.
- STARTING UP -
- Purchase raw materials.
- Pay wages.
- Need money to invest in long term assets (buildings and equipment)
- Day-to-day bills (water and electricity)
- GROWING -
- Once established there will be income from sales.
- May not be growing as fast as they like.
- Profits to be kept in the business to be able to grow.
- OTHER SITUATIONS -
- May have a cash flow problem due to changing market conditions.
- Customer may refuse to pay for goods - HUGE gap in inflows.
- LARGE ORDER - need additional raw materials.
- STARTING UP -
- Internal and external sources of finance.
- EXTERNAL -
- Share capital
- Private investors.
- Venture capitalists - willing to take a risk.
- Loan capital
- Short, medium or long term bank loans.
- Bank will want collateral (security)
- Overdraft - Short term solution.
- Short, medium or long term bank loans.
- Share capital
- INTERNAL -
- Existing capital (retained profit)
- Share holders.
- EXTERNAL -
- How much finance can a business obtain?
- Types of business - LIMITED COMPANY (share capital)
- Stage of the development of the business.
- State of the economy.
- Advantages of sources of finance.
- Reinvested Profit - no asociated cost.
- Sale of assets - sell and leaseback and financial development without borrowing.
- Bank overdrafts - can borrow only when it needs to.
- Trade credit - obtain goods without having to pay for them immediately.
- Venture capital - invest in smaller businesses.
- Disadvantages of sources of finance.
- Reinvested profit - May be limited constrain rate of growth.
- Sale of assets - loose the asset.
- Bank overdrafts - expensive - want back within 24 hours.
- Trade credit - other businesses may be reluctant to trade with them if the goods arent paid in time.
- Venture capital - want part of ownership + conribute to the running of the business.
- Who needs to use a cash flow forecast?
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