Sources of finance

Sources of finance

Sources of finance

  • Finance is needed throughout a company's life. The type and amount of finance required for a business depends on many factors: type of business, success of firm and state of the economy. There are two main types of money that a company needs.
  • Capital expenditure: Used for buying fixed assets where large sums of money are involved but they are not purchased often e.g. new premises.
  • Working capital: Day to day money required for running the business.
  • There are two main sources of finance, these are internal sources and external sources.

Internal sources include:

  • Retained profit - profit made is reinvested into the business.
  • Controlling working capital - reducing costs, delaying outflows and speeding up inflows.
  • Sale of assets - Assets the company owns can be sold and then leased back which frees up a large amount of capital in the short term.

External sources of finance:

  • Increasing trade credit - delaying payments on purchases for as long as possible.
  • Factoring - use a company to collect all debts.
  • Overdraft - an agreement with a bank to be allowed to overdraw a certain amount.
  • Grants - an agreed amount of money given for a special reason by government or other organisation.
  • Venture capital - people invest in the company when it is unable to float on the stock market.
  • Debentures - business equivalent of a mortgage. Loan for a set length of time at a set interest rate.
  • Share issues - selling of new shares to raise capital.
  • Owners savings - the owners investing money into the business.
  • Bank loans - medium or long term loans but interest is charged.
  • Leasing - instead of buying.
Finance

Break even

Break even

Finance

Budgeting

Budgeting

Finance

Business planning

Business planning

Finance

Cash flow

Cash flow

Finance

Contribution

Contribution

Finance

Cost and profit centres

Cost and profit centres