Presentation on theme: "N5 Prelim Preparation January 2014. Sources of Finance Source of Finance DescriptionAdvantageWho Bank LoanMoney borrowed and paid back in set instalments."— Presentation transcript:
Sources of Finance Source of Finance DescriptionAdvantageWho Bank LoanMoney borrowed and paid back in set instalments Does not have to be paid back all at once All Private Sector Bank Overdraft Arrangement to go below your bank balance Good when in need of quick finance All Private Sector GrantGiven for new business or a needed business Does not need to be repaidAll Private Sector Hire Purchase Used for buying capital goods e.g. Vehicles. Paid in instalments Does not need repaid all at once All Private Sector SharesPeople give money to own a percentage of the business Large amounts of finance raised without repaying all at once PLC and LTD
Sources of Finance Source of Finance DescriptionAdvantageWho Trade CreditCredit offered by suppliers giving you more time to pay for goods Can improve cash flow, if you can sell goods before paying for them All Companies DebentureA loan that is secured on the business assets Can be paid back over a very long period of time – low interest rates PLC Owners Money (capital) Money invested by the owner Does not need to be paid back All Private Sector Reinvest Profits Money paid back into business from previous profits Does not need to be paid back All Companies TaxesMoney collected from taxpayer e.g. Council Tax Large sums of money can be collected Public Sector
Cash Budget A financial statement which shows the amount of cash flowing in and out of a business over the course of a set time period.
Why Prepare a Cash Budget? Shows if the organisation has a surplus of cash: – Could invest the cash – Could plan large capital expenditure Shows if the organisation has a deficit of cash: – Allows corrective action to be taken Compare actual with forecast – Find ways to control expenditure – Delegate responsibility to individual managers/departments
Solving Cash Flow Problems There are many possible solutions depending on the actual problem, but may include: – Reduce stock levels – Encourage debtors to pay quickly – Reduce cash outflows (expenses) – Arrange a bank overdraft (short term)