Management of Finance Flashcards
Describe Advantages & Disadvantages of Owner’s personal Finance?
Adv: Allows the owner to keep control of the business.
It can reduce the amount to be borrowed from other sources.
Dis: It can be difficult to withdraw savings once they are invested in the business.
There is a risk that the owner could lose his savings if the business fails.
Describe Advantages & Disadvantages of Retained profits?
Adv: This can be used to make larger purchases, such as assets or for bulk buying.
Dis: A business can find it more difficult to grow if it regularly uses retained profits, especially to solve short term cash flow problems.
Describe Advantages & Disadvantages of Sales of assets?
Adv: Money can be raised from the sale of an asset to boost cash flow.
The business passes over responsibility for maintaining and renewing equipment to the leasing company.
Dis: Leasing over a long period of time can be expensive ultimately, the business
Describe Advantages & Disadvantages of Share Issue?
Adv: Very large sums of money can be raised through the sale of shares.
The money does not need to be repaid.
Dis: Leasing over a long period of time can be expensive ultimately, the business may pay back more than it received from the sale.
Describe Advantages & Disadvantages of Debentures?
Adv: Control of the business is retained.
These can be paid back over a long time.
Dis: Interest must be paid to shareholders.
It can be expensive to advertise and organise the sale of shares.
Describe Advantages & Disadvantages of Bank Overdraft?
Adv: Generally quite easy for a business to arrange with a bank.
It allows a business to continue to pay business expenses, despite there being no money on its bank account.
Dis: High Interest rate are usually applied by the bank borrowing money in this way.
The overdraft can be withdrawn by the bank at any time and must be repaid.
Describe Advantages & Disadvantages of Trade Credit?
Adv: This allows a business to sell stock at a higher price and earn a profit before the bill needs to be paid.
It helps a business to keep going when cash flow is poor.
Dis: Discounts for prompt payment is lost.
Suppliers will be reluctant to continue to offer trade credit if a business does not pay within the agreed credit period.
Describe Advantages & Disadvantages of Debt Factoring?
Adv: The business is no longer responsible for collection of debt and is passed onto the factor, saves time and money.
Cash flow is increased by receiving an advance payment of the debt from the factor.
Dis: The business has to sell the customer debt for a reduced amount. They receive less money than what is actually owed.
Describe Advantages & Disadvantages of Grants?
Adv: This money does not need to be repaid.
These are an incentive way of helping start up a new business or expanding.
Dis: Grants are usually just a one of and are not repeated.
They can be complicated to apply for and can require the business to meet certain requirements.
Describe Advantages & Disadvantages of Bank Loan?
Adv: The purchase of essential equipment can be made in advance and can be paid back over a long period of time.
Dis: Intrest has to be repaid along with the loan amount.
Small business may find it more difficult to receive a loan due to the higher interest rates, which may be due as they are at a higher risk.
Describe Advantages & Disadvantages of Leasing?
Adv: The business does not need to spend high amounts of purchasing marchaniry or vehicles.
Leasing company is responsible for renewing and maintaining the equipment.
Dis: The business does not own the asset.
Rental costs can be built up and up over long periods of time, it may be cheaper if if the business just buys the equipment.
Describe Advantages & Disadvantages of Hire Purchasing?
Essential equipment can be bought with a small deposit.
The asset is then owned by the business by the end of the paying period.
Dis: It can be very expensive form of borrowing if interest rates are high.
The business does not own the asset until the final payment is paid.
Describe Advantages & Disadvantages of Mortgage?
Adv: It can be paid back over a long period of time, e.g. 25 years.
The interest rate on the money is often lower than what one the bank loan;
Dis: Intrest rate must be paid along with the loan amount.
The mirage provider owns the building until the last payment has been paid. This means if they don’t keep up to date on payments, they could loose the property.
Describe Advantages & Disadvantages of Venture Capitalists?
Adv: Large amounts of investment can be gained by established business.
Venture capitalists are more willing to take on new riskier business.
Dis: Business angles have an equity stake which means they have a high share of profits are given up to them.
Describe Advantages & Disadvantages of Business Angles?
Adv: Business advice is offered as well as finance (investment)
Business Angles are also willing to take on riskier business.
Dis: Business angles have an equality stake, which means profits are given up to them.
