Financing Business | Jamb Commerce

Sources of Finance

1. Personal Savings: The money that an individual has saved from personal income and can be used to fund a business venture.
2. Sale of Shares: Selling ownership stakes in a company (equity) to raise capital for expansion or investment.
3. Sale of Bonds: Issuing debt securities to raise funds from investors who are repaid with interest over time.
4. Loans: Borrowing money from financial institutions like banks, which must be repaid with interest over an agreed period.
5. Debentures: A type of long-term loan issued by a company, usually paying a fixed rate of interest to the debenture holder.
6. Mortgage: A loan secured by property, often used for purchasing real estate, where the property itself acts as collateral.
7. Bank Overdraft: An arrangement with a bank allowing a business to withdraw more money than is available in its account, subject to limits.
8. Ploughing Back of Profit: Reinvesting profits back into the business instead of distributing them to shareholders or owners.
9. Credit Purchase: Acquiring goods or services from suppliers on credit, with payment deferred to a later date.
10. Leasing: Financing method where a business rents an asset, such as equipment or property, instead of purchasing it outright.
11. Venture Capital: Investment provided by venture capital firms in exchange for equity, typically in startups with high growth potential.
12. Crowdfunding: Raising small amounts of capital from a large number of people, typically via online platforms, for business ventures or projects.
13. Angel Investors: Wealthy individuals who invest in startups in exchange for equity or debt, often providing mentorship and advice.
14. Government Grants and Subsidies: Financial assistance provided by the government to encourage specific types of business or innovation.
15. Trade Credit: A type of short-term finance where suppliers allow businesses to purchase goods and pay for them later, often with terms like 30, 60, or 90 days.
16. Factoring: Selling receivables (invoices) to a third party (factor) at a discount to obtain immediate cash.
17. Supplier Finance: Financing arrangements made by suppliers that provide extended credit to businesses for their purchases.
18. Equity Financing: Raising capital by selling shares or ownership stakes in the business.
19. Debt Financing: Raising funds by borrowing money, typically through loans or bonds, with the obligation to repay over time.
20. Asset Financing: Using a company's assets, such as property or equipment, as collateral to secure financing.
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Types of Capital

21. Share Capital: The money raised by a company through the sale of shares to shareholders.
22. Capital Owned: The capital that the owners of a business personally invest or own in the business.
23. Authorized Capital: The maximum amount of capital a company is legally allowed to raise through the issuance of shares, as specified in its articles of incorporation.
24. Issued Capital: The portion of authorized capital that has been actually issued to shareholders through the sale of shares.
25. Called-Up Capital: The amount of the issued share capital that shareholders are required to pay up upon demand from the company.
26. Paid-Up Capital: The actual amount of money paid by shareholders for their shares in the company.
27. Liquid Capital: The portion of capital that is readily available for use in the business, such as cash or assets that can be quickly converted to cash.
28. Working Capital: The capital required to cover a company’s short-term operational needs, such as inventory, receivables, and payables.
29. Owners' Equity: The residual value of a business after liabilities have been deducted from assets; also known as shareholder equity.
30. Retained Earnings: Profits that are retained in the company and reinvested rather than distributed as dividends.
31. Convertible Capital: Capital invested in a business that can later be converted into equity shares or another form of capital.
32. Debt Capital: Money borrowed by a business that must be repaid with interest, often through loans or bonds.
33. Equity Capital: Money raised by a business through the sale of shares or ownership stakes, not requiring repayment but offering ownership.
34. Risk Capital: The funds invested in high-risk ventures or startups, often in exchange for equity or a potential return on investment.
35. Growth Capital: Capital invested in a business to fund expansion or growth, often in the form of equity investment or long-term debt.
36. Intangible Capital: Non-physical assets that contribute to a business’s value, such as intellectual property, patents, and brand recognition.
37. Seed Capital: The initial capital used to start a business, often provided by the founders, family, or angel investors.
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Calculation of Forms of Capital

38. Share Capital Calculation: Determining share capital by multiplying the number of shares issued by the nominal or par value of each share.
39. Working Capital Formula: Calculated as current assets minus current liabilities, representing the capital available for day-to-day operations.
40. Capital Employed: The total capital used in a business, calculated as total assets minus current liabilities.
41. Return on Equity (ROE): Measures the profitability of a business in relation to the shareholders’ equity, calculated as net income divided by owners’ equity.
42. Debt-to-Equity Ratio: A financial ratio that compares a company’s total liabilities to its shareholder equity, indicating the degree of financial leverage.
43. Gross Profit: Calculated as revenue minus the cost of goods sold, representing the profit a company makes after covering direct production costs.
44. Net Profit: The final profit after all expenses, taxes, and interest have been subtracted from gross profit.
45. Operating Profit: Profit generated from normal business operations, calculated as gross profit minus operating expenses.
46. Profit Margin: A profitability ratio calculated as net income divided by revenue, showing the percentage of profit a company makes for every dollar of sales.
47. Return on Investment (ROI): A measure of the profitability of an investment, calculated as net profit divided by the total investment.
48. Capital Intensity: A measure of the amount of capital required for a business to produce a given amount of output.
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Profits

49. Gross Profit: The total revenue minus the direct costs of producing goods or services sold, such as raw materials and labor.
50. Net Profit: The amount of money left after all business expenses, including overhead, taxes, and interest, have been deducted from gross profit.
51. Operating Profit: Earnings from normal business operations, excluding income from other sources like investments.
52. Profit Margins: The percentage of revenue remaining after all expenses have been deducted, indicating a company's profitability.
53. Profitability Ratios: Financial metrics used to assess a company’s ability to generate profit relative to its revenue, assets, or equity.
54. Contribution Margin: The difference between total sales and variable costs, contributing to fixed costs and profits.
55. Break-Even Point: The level of sales at which a business’s total revenue equals its total costs, resulting in no profit or loss.
56. Earnings Before Interest and Taxes (EBIT): A measure of a company’s profitability that excludes interest and tax expenses.
57. Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA): A measure of operational performance that excludes the effects of financing and accounting decisions.
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Turnover

58. Definition of Turnover: The total revenue generated by a business from selling its goods or services within a specific period.
59. Turnover Calculation: Turnover is calculated by adding up all sales or revenue transactions made by the business during a given period.
60. Turnover as a Performance Indicator: Turnover reflects the business’s ability to generate sales and is a key indicator of market demand and business efficiency.
61. Annual Turnover: Total revenue generated by a business in one year, often used as a benchmark for business growth and comparison.
62. Sales Turnover: A measure of how quickly a business sells its inventory, important for understanding stock liquidity and operational efficiency.
63. High Turnover Business: A business with high turnover typically operates in industries with fast-moving products or services.
64. Turnover Ratio: A ratio used to assess the efficiency of a business in generating revenue from its assets, calculated by dividing turnover by total assets.
65. Customer Turnover: The rate at which customers stop buying from a business or the rate at which new customers are acquired.
66. Employee Turnover: The rate at which employees leave a company, which can impact operational continuity and costs.
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Problems of Sourcing Finance

67. High Interest Rates: Borrowing costs may be high due to interest rates, making it difficult for businesses to obtain affordable financing.
68. Credit Risk: Lenders may hesitate to provide finance due to perceived risks associated with the borrower’s ability to repay.
69. Collateral Requirements: Businesses may struggle to meet the collateral demands of financial institutions, particularly startups without assets.
70. Lack of Credit History: New businesses often face difficulty accessing finance due to the lack of a solid credit history or track record.
71. Economic Uncertainty: Economic downturns can lead to tight credit conditions and reduced access to finance for businesses.
72. Short-Term Financing: Many financing options available to businesses are short-term, requiring businesses to frequently seek refinancing.
73. Government Regulation: Stringent government regulations on business financing can create additional barriers and delays.
74. Insufficient Cash Flow: Businesses may face difficulties in securing loans if they do not have a stable cash flow to demonstrate repayment capability.
75. Rising Debt Levels: Excessive borrowing can create financial strain and reduce the business’s ability to access additional finance.
76. Investor Confidence: Poor financial performance or reputation issues may deter potential investors from providing funds.
77. Limited Access to Venture Capital: High-risk businesses, such as startups, may have limited access to venture capital and other equity financing options.
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The Role of Bureau de Change in an Economy

78. Definition of Bureau de Change: A financial service provider that facilitates the exchange of foreign currencies, primarily for travel or remittance purposes.
79. Currency Exchange: Bureau de change establishments provide currency exchange services to businesses and individuals.
80. Supporting International Trade: By exchanging currencies, bureaus enable businesses involved in international trade to meet their foreign exchange needs.
81. Tourism Facilitation: Bureau de change supports the tourism industry by offering tourists the ability to exchange their home currency for local currency.
82. Remittance Services: Many bureaus de change offer remittance services, allowing people to send money internationally, particularly in developing countries.
83. Forex Market Role: Bureau de change contribute to the forex market by offering competitive exchange rates and facilitating currency flow.
84. Government Regulation: Bureau de change are regulated by central banks or monetary authorities to ensure compliance with exchange control laws and anti-money laundering regulations.
85. Liquidity in Currency Markets: By exchanging currencies, bureaus de change provide liquidity to local currency markets, making it easier for businesses and individuals to access foreign currencies.
86. Promote Capital Flow: Bureaus de change promote the flow of capital across borders by enabling the exchange of currencies, supporting investments and trade.
87. Impact on Local Economy: By facilitating currency exchange, bureaus help businesses access needed foreign currencies for imports, exports, and travel, which strengthens the economy.
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Various Ways of Financing a Business

88. Equity Financing: Raising capital by selling shares of the business, thereby diluting ownership but avoiding debt.
89. Debt Financing: Borrowing money that must be repaid, usually through loans or bonds, to raise capital.
90. Grants and Subsidies: Receiving non-repayable funds from the government or other institutions to support business operations.
91. Crowdfunding: Gathering small amounts of capital from a large number of people, usually via online platforms, to fund a business idea.
92. Angel Investing: Obtaining capital from wealthy individuals who invest in exchange for equity or convertible debt.
93. Venture Capital: Raising funds from venture capitalists who provide equity investment in high-growth businesses in exchange for a share of ownership.
94. Trade Credit: Suppliers offer goods or services on credit, allowing businesses to receive inventory without immediate payment.
95. Leasing: Financing equipment or property by renting it rather than purchasing it outright.
96. Factoring: Selling accounts receivable to a third party at a discount in exchange for immediate cash.
97. Personal Savings: Using personal funds or savings to finance the business, often in the initial stages.
98. Bank Overdraft: An agreement with a bank allowing a business to withdraw more money than is available in its account to cover short-term needs.
99. Credit Cards: Using business credit cards to manage short-term financing needs, although at higher interest rates.
100. SBA Loans: Loans guaranteed by the U.S. Small Business Administration that provide easier access to capital for small businesses.
101. Convertible Bonds: Issuing bonds that can be converted into shares at a later date, combining features of debt and equity financing.
102. Public Offerings: Offering shares to the public through the stock market to raise capital from investors.
103. Supplier Financing: Extending the payment period for goods or services, effectively providing short-term credit to the business.
104. Peer-to-Peer Lending: Borrowing money directly from individual investors through online platforms, bypassing traditional financial institutions.
105. Retained Earnings: Using profits earned by the business to fund future activities, reducing the need for external financing.
106. Joint Ventures: Collaborating with other companies to share resources, risks, and financing in a specific business venture.
107. Debt Issuance: Issuing bonds or debentures to raise long-term debt capital.
108. Government Loans: Obtaining loans from government programs designed to support businesses, particularly small or disadvantaged ones.
109. Peer Investment: Raising capital from other businesses or partners that have a stake in the success of the business.
110. Family and Friends: Borrowing or receiving investments from personal contacts to fund a business startup or expansion.
111. Strategic Partnerships: Partnering with other businesses to share resources, risks, and financial commitments for mutual benefit.
112. Invoice Financing: Using unpaid invoices as collateral to secure short-term loans, providing immediate working capital.
113. Reinvested Profits: Using the business’s own earnings from operations to fund expansion and development.
114. Convertible Debt: Borrowing money through debt instruments that can be converted into equity at a future date, offering flexible repayment options.
115. Government Bonds: Issuing bonds to raise capital, often used by public corporations or large projects backed by the government.

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