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There a several sources of funding to consider when starting a new business. Included in these are the following:
Most common source of funding, if business is sound and meets lending criteria. May require business plan.
Personal Credit Cards:
a last resort
capital, available to operating businesses to improve and manage their cash flow.
Owner's Capital
Shareholders'
Leasing
Hire Purchase Buying on Credit
Capital
Retained Profit
Overdraft Bank Loan
Selling Assets
Debtors Factoring
Owner's Capital 1
Often, the only source of capital available
quickly turned into long term, fixed assets, which cannot be readily converted into cash.
owner may already have all their capital invested, or they may not be willing to risk further investment,
So this may not be the most likely source of
Shareholders' Capital 1
Shareholders are the owners of a Limited
Company.
They invest money in the hope of capital
growth:
That is, the business makes profits, grows,
Shareholders' Capital 2
It is quite normal for limited companies to issue new shares (a Rights Issue), in an attempt to raise capital,
expansion or restructuring,
not for solving a cash flow problem!
owners,
This would be the dividend in a limited
company
Alternatively, some or all of it could be
asset,
so it may not be in cash, or money in bank.
firm has made after paying all the costs associated with producing and selling that product.
It should not be confused with sales
PROFIT
Gross Profit - marketing and admin. costs
OPERATING PROFIT
Overdraft 1
a form of loan from a bank. business becomes overdrawn when it
business can use as much as it needs up to the agreed overdraft limit, at any time.
Overdraft 2
But bank will charge interest on the amount
overdrawn, and
will only allow an overdraft if they believe the
business is credit-worthy
i.e.: it is likely to pay the money back. bank can demand repayment of an overdraft at
any time.
Many businesses have been forced to cease
Overdraft 3
Even so, for short term borrowing, an
materials, whilst waiting for payment on goods produced (which may or not be sold)
Bank Loan 1
lending by a bank to a business. fixed amount is lent: e.g. 10,000 for a fixed period of time: e.g. 3 years.
Bank Loan 2
if security is required, this means the loan is
problems
but, if loan obtained, frees up other capital held by
Leasing 1
Leasing business has use of an asset, but pays a monthly fee for its use and will
never own it
For example, someone setting up business
company.
Leasing 2
Will have to pay monthly leasing fee, say
other purposes.
Business purchasing equipment may decide
Leasing 3
In example above, if van had been
Hire Purchase
Similar to leasing, But, at end of hire period, asset belongs
a tractor.
Would own the tractor once they had paid
for it
Buying on Credit 1
creates Creditors. If a business, selling shoes, buys on credit from
Clark's Shoes/K-Shoes, it may not have to pay Clark's for one month after delivery of goods.
It means business could sell the shoes at a
profit, and have money at the end of the month to pay Clark's invoice.
Extending the credit period will help short
Buying on Credit 2
will be more cash in bank for this period. However, it may upset a business suppliers, who have their own cash flows to think of!
businesses, and
the government has tried to take action against
Selling Assets
Business can sell its assets to raise capital! Often last choice: assets are vital to business. Business may lease-back asset so retain its use
cash flow
If cash raised used effectively, long term cash
Debtors
If firm is in immediate need of cash, could
Factoring 1
For larger firms with turnover (sales) of
debt(or)s.
Factor is a type of finance company Will pay 80% of invoice value at time of sale,
Factoring 2
There is a charge for factoring Amount charged depends on such things as: Number of debtors,
Size of debts,
businesses.
This proves many managers and owners
Any Questions ?
Cash Flow Learning Trail: Sources of Funds or Capital by biz/ed & Frequently Asked Questions by SCORE Pittsbu
http://www.bized.ac.uk/stafsup/options/cashflow4d.htm
http://www.scorepittsburgh.com/faqs/answer.cfm?id=17
NOTE: Copyright of content in all slides is assumed to be retained by biz/ed and SCORE Pittsburgh,
The only exception to this is where amendments or improvements have been made in this presentation which are sufficient for copyright of those amendments or improvements (only ) to then pass to M C Pratt.