Chapter 14: Introduction to finance and sources of finance

capital needed by an entrepreneur to set up a business

the capital needed to pay for raw materials, day-to-day running costs and credit offered to customers, in accounting terms: working capital = current assets - current liabilities

the existing managers of a business purchase it from the owners to take full control

raised from the business’s own assets or from profits left in the business (ploughed-back or retained profits)

raised from sources outside the business

the profit left after all deductions, inluding dividends, have been made; this is invested back into the company as a source of finance

the ability of a firm to pay its short-term debts

an arrangement with a bank that their customer can withdraw up to an agreed limit from their account as and when required; this is a form of borrowing

an asset is sold to a company which agrees to make fixed repayments over an agreed time period; the asset belongs to the company once the final payment is made

obtaining the use of equipment or vehicles and paying a rental or leasing charge over a fixed period, this avoids the need for the business to raise long-term capital to buy the asset; ownership remains with the leasing company

permanent finance raised by companies through the sale of shares

loans that do not have to be repaid for at least one year

bonds issued by companies to raise debt finance, often with a fixed rate of interest

existing shareholders are given the rights to buy additional shares at a discounted price

an individual, usually with business experience, who directly invests part of their wealth in new and growing businesses

the use of small sums of capital from a large number of individuals to finance a new business venture

the provision of very small loans by specialist finance businesses, usually not traditional commercial banks