Section 3.1 Finance and accounts - IB business management

Leasing

A form of hiring whereby a contract is agreed between a leasing company (the lessor) and the customer (the lessee). The lessee pays rental income to hire assets from the lessor, who is the legal owner of the assets.

Venture capital

A high risk capital invested by venture capital firms, usually at the start of a business idea. The finance is usually in the form of loans and/or shares in the business venture.

Overdrafts

Allow a business to spend in excess of the amount in its bank account, up to a predetermined limit. They are the most flexible form of borrowing in the short term.

Trade credit

Allows a business to "buy now and pay later". The credit provider does not receive any cash from the buyer until a late date (usually between 30-60 days).

Subsidies

Are funded by the government to lower a firms production costs as output provides extended benefits to society, e.g. farmers are often provided with subsidies to stabilize food prices.

Share issue

Exists when an existing public limited company raises further finance by selling more of its shares.

External sources of finance

Getting funds from outside the organization, e.g. through debt (overdrafts, loans and debentures), share capital, or the government.

Internal sources of finance

Getting funds from within the organization, e.g. through personal funds, retained profits and the sale of assets.

Grants

Government financial gifts to support business activities. They are not expected to be repaid by the recipient.

Capital expenditure

Investment spending on fixed assets such as the purchase of land and buildings.

Debt factoring

Is a financial service whereby a factor (such as a bank) collects debts on behalf of other businesses in return for a fee.

Sale-and-leaseback

Is a source of external finance involving a business selling a fixed asset (such as its computer systems or a building) but immediately leasing the asset back. In essence, the lessee transfers ownership to the lessor but the asset does not physically leave the business.

Initial public offering (IPO)

Refers to a business converting its legal status to a public limited company by floating (selling) its shares on the stock exchange for the first time.

Loan capital

Refers to medium to long term sources of interest-bearing finance obtained from commercial lenders. Examples include mortgages, business development loans and debentures.

Revenue expenditure

Refers to spending on the day-to-day running of a business, such ad rent, wages and utility bills.

Sources of finance

The general term used to refer to where or how businesses obtain their funds, such as from personal funds, retained profits, loans and government grants.

Share capital

The money raise from selling shares in a limited liability company, from its initial public offering (IPO)and any subsequent share issues.

Retained profit

The value of surplus that the business keeps to use within the business after paying corporate taxes on its profits to the government and dividends to its shareholders.

Business angels

Wealthy entrepreneurs who risk their own money by investing in small to medium sized businesses that have high growth potential.