Business 2
Finance:
Refers to the funds required to carry out the activities of the business.
Critical issue for entrepreneurs:
1. Need to consider the financial concerns for business
2. Need to determine most appropriate source
Questions to consider:
How much debt can the business afford?
How much do I need or expect from the business?
How much will it cost to start the business?
What financial success have other similar business achieved?
What funds o I have available and what will I need to acquire?
From where will I finance capital requirement?
Source of finance:
There are 2 main types of sources available to a business-
1. Shareholders’ equity
Your own money or a partners money
2. Debt
Other people money
Banks
Finance companies
Credit unions
Building societies
Trade credit
Debt finance:
This is money obtained through loans. The main advantage is that the owner doesn’t have to sell any ownership in the business. Sometimes also tax advantages.
Consider the length of time for the finance-
Short term – less than one year
Money to fund the day to day workings of the business. Commonly called working capital: current assets (invitatories, receivables) less current liabilities (overdrafts, creditors). The main types- bank overdrafts, bank bill and trade credit
Medium term – between 1 and 5 years
Usually used when business want to expand, purchase new equipment or develop new products. Main types are term loans, personal loans or leasing
Long term – greater than 5 years
Used to perchance building, land, plant and equipment. The main types are mortgage, which is a loan secured on some type of asset such as land or building.
Financial requirements
How much money will I need to establish and operate the business?
Establishment costs/ expenses
Items may include legal fees, business registration fees, furniture and equipment, phone and electricity connection, stock and possibly rent in advance.
Operating costs / expenses
The owner needs to
Refers to the funds required to carry out the activities of the business.
Critical issue for entrepreneurs:
1. Need to consider the financial concerns for business
2. Need to determine most appropriate source
Questions to consider:
How much debt can the business afford?
How much do I need or expect from the business?
How much will it cost to start the business?
What financial success have other similar business achieved?
What funds o I have available and what will I need to acquire?
From where will I finance capital requirement?
Source of finance:
There are 2 main types of sources available to a business-
1. Shareholders’ equity
Your own money or a partners money
2. Debt
Other people money
Banks
Finance companies
Credit unions
Building societies
Trade credit
Debt finance:
This is money obtained through loans. The main advantage is that the owner doesn’t have to sell any ownership in the business. Sometimes also tax advantages.
Consider the length of time for the finance-
Short term – less than one year
Money to fund the day to day workings of the business. Commonly called working capital: current assets (invitatories, receivables) less current liabilities (overdrafts, creditors). The main types- bank overdrafts, bank bill and trade credit
Medium term – between 1 and 5 years
Usually used when business want to expand, purchase new equipment or develop new products. Main types are term loans, personal loans or leasing
Long term – greater than 5 years
Used to perchance building, land, plant and equipment. The main types are mortgage, which is a loan secured on some type of asset such as land or building.
Financial requirements
How much money will I need to establish and operate the business?
Establishment costs/ expenses
Items may include legal fees, business registration fees, furniture and equipment, phone and electricity connection, stock and possibly rent in advance.
Operating costs / expenses
The owner needs to