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1、Unit 6 Raising Finance,Learning Objectives:,To identify and understand finance and finance-raising. To demonstrate the types and sources of finance. To grasp the methods and skills of raising finance.,“Money makes money, and the money it makes, makes more money.” “You can do nothing without money.”
2、Where can you find money? How should you manage it?,What is finance-raising?,Finance ? Raising finance?,Why raising finance?,To meet needs of a growing business To finance an MBI or MBO,Type of finance required,Remember !,A key consideration in choosing the source of new business finance is to strik
3、e a balance between equity and debt to ensure the funding structure suits the business. (an optimization of capital structure),Sources of finance,Internal - Organic growth,Organic growth growth generated through the development and expansion of the business itself. Can be achieved through: Generatin
4、g increasing sales increasing revenue to impact on overall profit levels Use of retained profit used to reinvest in the business Sale of assets can be a double edged sword reduces capacity?,External - Inorganic Growth,Inorganic Growth growth generated by acquisition (merger and takeover) Long Term m
5、ay be paid back after many years or not at all! Short Term used to cover fluctuations in cash,Long term,Loans Bonds Stocks Retained earnings depreciation,Bonds,Actually an IOU A written contract which stipulates the par value, the maturity date (usually 10 to 30 years) and the interest (paid quarter
6、ly, semi-annually or annually) rate.,Preference Shares (preferred stock),Fixed dividend Callable: (can be called back) The first to be paid Cumulative feature: (dividend must be accumulated and eventually paid in financial difficulty.) Participating feature: (be entitled to additional dividends if t
7、he company is financially doing well.) No voting rights,Ordinary Shares (common stock),Cannot be recalled. Voting and election rights. The last to pay dividends. The last to claim assets in liquidation.,Short term,Bank loans Overdraft facilities Trade credit Factoring Leasing,Bank loans,-necessity o
8、f paying interest on the payment, repayment periods from 1 year upwards but generally no longer than 5 or 10 years at most Secured loans: co-signers collaterals Unsecured loans,Overdraft facilities,the right to be able to withdraw funds you do not currently have Provides flexibility for a firm Inter
9、est only paid on the amount overdrawn,Trade credit,An agreement whereby the seller provides goods or services to the buyer without asking the latter for immediate cash payment. Careful management of trade credit can help ease cash flow usually between 28 and 90 days to pay 3types: open account, prom
10、issory note, draft,Factoring,the sale of debt to a specialist firm who secures payment and charges a commission for the service. Factors are collection agents who buy accounts receivable under their face value from firms who are in need of cash. Quality of the receivables, cost and time of collectio
11、n should be considered by factors.,Terms,Raising finance: obtaining money through borrowing of different kinds. ( even issuing shares in your company is a form of borrowing: the company is in effect borrowing money from shareholders.) Loan shark: someone who lends money at very high rates of interes
12、t to people who arent able to borrow from banks, and may threaten violence if it is not repaid. Trusts: putting money into financial institutions that invest in other companies, known as mutual funds in the US. Cash cow: the part of a business you can always depend on to make enough profit. ISA: Ind
13、ividual Savings Account (a tax-free savings plan) Business angels: private investors looking for new start-ups to invest in. They provide you with seed capital to set up your business. IPO: initial public offering: your company is floated and you issue shares on a stock market for the first time. Float: to establish a company by selling shares. Blue chips: an industrial share that is expensive and in which people have confidence.,