Aids To Trade That Support Commerce: Sources Of Finance And Commercial Performance: Ways In Which Entrepreneurs And Commercial Enterprises Raise Finance (Copy)
Cheat Sheet: 5.4.1 Sources of Finance and Commercial Performance
Meaning of Entrepreneurship
| Term | Explanation |
|---|---|
| Entrepreneurship | The process of identifying business opportunities, taking risks, and organising resources to create/manage an enterprise |
Written and Compiled By Sir Hunain Zia, World Record Holder With 154 Total A Grades, 7 Distinctions and 11 World Records For Educate A Change O Level And IGCSE Commerce Full Scale Course
Short-Term Sources of Finance
| Source | Features | Advantages | Disadvantages | Example |
|---|---|---|---|---|
| Trade Credit | Buy now, pay later from suppliers | Improves cash flow | May lose cash discount | Retailer ordering stock |
| Debt Factoring | Selling debts to factor at discount | Immediate cash | Less total income | Exporter selling receivables |
| Hire Purchase | Pay in instalments, ownership after final payment | Easy access to assets | Expensive overall | Buying machinery |
| Leasing | Rent asset without owning | Lower initial cost | No ownership | Leasing cars |
| Sale & Leaseback | Sell asset then lease it back | Immediate funds | Loss of ownership | Selling office building |
| Overdraft | Withdraw more than balance | Flexible, short-term | High interest | Covering short-term bills |
| Selling Assets | Selling unused property/equipment | Instant funds | Reduces assets | Selling unused land |
| Owner’s Savings | Personal funds invested | No repayment needed | Risk of personal loss | Entrepreneur investing savings |
| Retained Profit | Profits reinvested | No interest/repayment | Only if profit exists | Expanding business |
Written and Compiled By Sir Hunain Zia, World Record Holder With 154 Total A Grades, 7 Distinctions and 11 World Records For Educate A Change O Level And IGCSE Commerce Full Scale Course
Long-Term Sources of Finance
| Source | Features | Advantages | Disadvantages | Example |
|---|---|---|---|---|
| Ordinary Shares | Ownership shares in company | No repayment, raise large sums | Loss of control, dividends | Selling shares on stock market |
| Preference Shares | Fixed dividends, less voting power | Attractive to investors | Dividend must be paid | Preference shareholders in PLC |
| Loans | Borrowed from banks | Fixed repayment schedule | Interest cost | Bank loan for expansion |
| Debentures | Long-term loan certificates | Fixed interest | Increases debt burden | Issued by public companies |
| Venture Capital | Investment from specialist firms | Large funds, expertise | Loss of control, high return demanded | Tech start-up funding |
| Crowdfunding | Raising small sums from many people online | Access to wide pool, marketing benefit | May fail to raise enough | Kickstarter campaigns |
Written and Compiled By Sir Hunain Zia, World Record Holder With 154 Total A Grades, 7 Distinctions and 11 World Records For Educate A Change O Level And IGCSE Commerce Full Scale Course
Key Financial Terms
| Term | Meaning |
|---|---|
| Sales/Revenue | Total income from sales (Selling price × Quantity sold) |
| Profit | Revenue – Costs |
| Working Capital | Current Assets – Current Liabilities |
| Assets | Resources owned (land, machinery) |
| Liabilities | Debts owed (loans, creditors) |
| Interest | Cost of borrowing money |
| Capital | Money invested into the business |
| Cash Discount | Reduction in price for early payment |
| Trade Discount | Reduction in price for buying in bulk |
Written and Compiled By Sir Hunain Zia, World Record Holder With 154 Total A Grades, 7 Distinctions and 11 World Records For Educate A Change O Level And IGCSE Commerce Full Scale Course
Appropriateness of Sources of Finance
| Situation | Most Suitable Source |
|---|---|
| Start-up needing small funds | Owner’s savings, trade credit |
| Expanding factory | Loan, debentures, venture capital |
| Covering seasonal cash flow | Overdraft, trade credit |
| Launching new product | Crowdfunding, retained profit |
| Short-term equipment use | Leasing |
Summary
| Takeaway |
|---|
| Enterprises raise finance through short-term (trade credit, overdraft, leasing) and long-term (shares, loans, venture capital) sources. Choice depends on cost, control, risk, and purpose. |
Written and Compiled By Sir Hunain Zia, World Record Holder With 154 Total A Grades, 7 Distinctions and 11 World Records For Educate A Change O Level And IGCSE Commerce Full Scale Course