Business Finance

Sources of Finance

Having enough business finance in place always provides peace of mind however there needs to be an appropriate mix between overdrafts, loans and other finance options with “what if” scenario’s properly considered. Potential peaks and troughs must be carefull examined allowing flexibility for unexpected cashflow shortfalls.

Businesses essentially need finance for the short term and the long term. The way in which they may raise these funds may differ a great deal.

Two key sources of finance are available to any business – internal sources and external sources.

Internal sources refers to money a business can raise from within. This may include retained profit, or perhaps even better management of existing resources

External sources means raising money from outside the business. In many cases this will mean turning to the banks and other finance companies for support. This is where Xba Finance can help you.

Working Capital

This is perhaps the single most important factor for good business health

Business’ needs cash to pay for day to day activities. Wages, raw materials, supplies etc. The money available to a business to meet the short term cash requirements is known as “working capital”. The main sources of working capital are the current assets in the balance sheet as these are short term assets that can be used to generate cash. Short term assets include stock, debtors and cash. However business will also have current short term liabilities and so these have to be taken into account when working out how much working capital a business has at its disposal. For example trade creditors and VAT liabilities.

It is vital for any business to have sufficient working capital to meet all its requirements. Many businesses have failed, not because they were unprofitable, but because they suffered from a shortgage of working capital which has meant that they have been unable to meet their obligations to creditors. As a result business relationships can very quickly become strained causing supply problems and ultimately business failure.

The most common form of finance for filling the working capital gap in any business is the overdraft.



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