business finance
define start-up capital
start-up capital: the capital needed by an entrepreneur to set up a business
define working capital
the capital needed to pay for raw materials, day-to-day running costs and credit offered to customers
define retained earnings
profit after tax retained in a company rather than paid out as dividends to shareholders
define short-term and long-term finance
short-term finance: money required for short periods of time of up to one year
long-term finance: money required for more than one year
define current assets and current liabilities
current assets: assets that are either cash or likely to be turned into cash within 12 months
current liabilities: debts that usually have to be paid within one year
define internal and external sources of finance
internal sources: raising finance from the business's own assets or from profits left in the business.
external sources: raising finance from sources outside the business
explain the difference between cash and profit
Cash flow is the money that flows in and out of your business throughout a given period, while profit is whatever remains from your revenue after costs are deducted.
define capital and revenue expenditure
capital expenditure: the purchase of non-current assets that are expected to last for more than one year
revenue expenditure: spending on all costs and assets other than non-current assets, which includes wages, salaries, etc.
explain any three internal sources of finance
sale of unwanted assets, sale and leaseback, working capital, evaluation of internal sources of finance
define bankruptcy and liquidity
bankruptcy: the legal procedure for liquidating a business which cannot fully pay its debts out of its current assets.
liquidity: the ability of a business to pay for its short-term debts
managing trade receivables and trade payables
trade receivables:
- only selling products for cash and not on credit
- reducing the credit period offered to customers
trade payables:
- delaying payments to suppliers to increase the credit period
- only buying goods from suppliers who will offer credit
explain five needs for business finance
- setting up
- day-to-day needs
- buy assets, pay for higher working capital needs. research and development
- to take over other businesses
- special situations: decline in sales, recession, etc.