Entrepreneurial finance

The purpose of the learning is for you to develop your own learning.  There are a number of tasks that you should complete before you undertake the next section.  You can work through this section at your own pace.  It is expected that you would take up to 3 hours to complete this section.  You must complete this section before you move to the next section.

 

Task 1

Open and listen to “Lecture 1 Part 1”

This part introduces the typical financial needs of a business start-up and some of the difficulties they face.

 

Task 2

You should now complete the questions in your workbook

These tasks will build your knowledge of entrepreneurial finance.

 

Task 3

Open and listen to “Lecture 1 Part 2”

This part explains the differences between internal funding and external funding for a start-up.

 

Task 4

You should now complete the question in your workbook

These tasks will build your knowledge of entrepreneurial finance.

 

Task 5

Open and listen to “Lecture 1 Part 3”

This part explains leasing, factoring and trade debt.

 

Task 6

You should now complete the questions in your workbook.

These tasks will build your knowledge of entrepreneurial finance.

 

Task 7

You should read the lecture “Credit Cards” and then answer the question in your workbook

Credit cards

The most common method of financing a small business is through the use of a credit card.  There are of course advantages and disadvantages to this method, but it is surprisingly easy and a very useful method.  In some cases it can also be the only method of getting finance. 

The first factor to consider is your personal credit rating.  If your credit rating is low then this is a form of finance that may well be closed.  The second factor is that credit cards are back by a personal guarantee.  This means that your personal assets cover any debt you are unable to pay.  The last point is that interest rates are much higher for a credit card than for loans.  So before you apply you should consider these factors very carefully.

Some banks off two types of credit cards; personal cards and small business cards.  Personal cards tend to have lower limits but more government protection, whereas small business cards tend to have higher limits and sometimes rewards.  Some business credit cards have flexible interest rates where the interest rates can be increased if you fail to pay.

The main advantages are that a credit card can provide much needed cash flow to a business to buy inventory or pay urgent bills.  The also provide very accurate details of your spending.  Some banks allow the information to be easily transferred into your account records for your business.

The main disadvantage is that the interest rate is much higher than a loan.  Although this can be avoid if you are able to pay of the full amount by the due date.  Making late payments could also damage your credit rating which would affect future loans and credit card applications. There is some evidence that start-ups that take on credit card debt reduce the chances of success by 2% for every £1000 they owe.

Even if you set up a company you may still have to provide a guarantee against the credit card if you fail to pay the debt on time.  In many cases this also applies to the partners you may have in the business.

Usually at 15 days after the end of the months you get a statement and depending on the issuer you may then get 15 days to pay without interest.  This allows you up to 30 days of interest free credit.  If your business has reasonable high cash flows then a credit card could be a useful way of cover expenses if you are able to pay off the account on the due date.  Either way you must endeavour to pay of as much as you can each time the payment falls due as this reduces the interest payments.

Before you apply you should check your credit rating and fix up any mistakes that exist.  You should carefully work out how you will use the credit card, and how you will pay off the account.  Look for a card that provides rewards and this can be an added bonus, especially if you pay of the account by the due date.  Choose carefully which type of card you want; it may be to your advantage to get a business card for every day expenses and use a low interest personal card for major expenses.

Finally you need to protect yourself against fraud.  Keep all documents relating to your card secure.  Be very careful when giving out your card details, especially over the phone.  Check your statements regularly for any unauthorised transactions.

 

 

Task 8

You should now watch this online video

This videos provides information about sourcing finance

 

Task 9

You should now complete this online quiz

This quiz will help you test your knowledge

 

 

You should undertake further reading on the topics in this section.  We recommend that you read the following:

Chapters 7 & 8: Deakins, D and Freel, M. (2012) Entrepreneurship and Small Firms, 6^th edition, McGraw-Hill, London.

You will find the following links useful:

Accounting and Finance dictionary

All business

Venture Line

 

You will find the following videos useful:

Factoring 1

Factoring 2

Hire purchase and leasing

Loans and overdraft

Private Equity

Sources of funding

 

The next section is Lecture 2