When partners or sole traders use their own money to finance a business.
100
What are external sources of Finance
Sources of finance come from outside the business.
100
What does short-term refer to?
It refers to the current tax year, meaning the money has to be repaid to lenders within one year
200
What are dormant assets?
Unused assets that business can sell for a source of finance.
200
2 examples of external sources of finance.
Loans from banks & selling shares to shareholders.
200
What does medium-term refer to?
It refers to a period of time of more than one year but no more than five years.
300
What are the six main types of internal sources of finance?
Personal Funds, Family & Friends, Working Capital, Retained Profits, Selling Assets, Investing Extra Cash.
300
What are the two types of share capital?
Preference shares and ordinary shares.
300
What is the purpose that all sources of finance serve?
To aid business operations in some way.
400
What is an advantage and a disadvantage of using Friends and family as a source of finance?
Advantage: Cheaper and more straight-forward than borrowing money from a bank.
Disadvantage: Often results in arguments and fallouts.
400
What is share capital?
It's the main source of finance in a limited company, it's the money raised from selling shares in a company.
500
Explain Retained Profits.
Retained Profits: also known as internal profits, are profits that the business keeps after paying taxes and dividends to shareholders. These profits are often used for the purchase or upgrading of fixed assets. The benefit of this is that the business doesn’t rely on loans as much, however retained profits may not always be enough for the business, meaning other sources of finance are needed.
500
What is the purpose of government subsidies?
To reduce the costs of production, in order to provide benefits to society. For example the government provide subsidies to farmers so that they can lower the products costs.