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Questions and Answers
What is a key step in determining a business's financial requirements?
What is a key step in determining a business's financial requirements?
- Choosing a business location
- Projecting sales, revenues, and expenses (correct)
- Minimizing operational costs
- Reviewing previous financial statements
Which of the following is considered a source of short-term finance?
Which of the following is considered a source of short-term finance?
- Common stock issuance
- Venture capital
- Trade credit (correct)
- Corporate bonds
What is an example of bank credit as a source of short-term finance?
What is an example of bank credit as a source of short-term finance?
- Government grants
- Overdraft facility (correct)
- Long-term loans
- Equity financing
What is a factor to consider when estimating investment levels for a business?
What is a factor to consider when estimating investment levels for a business?
Which of the following sources of finance is NOT typically classified as short-term?
Which of the following sources of finance is NOT typically classified as short-term?
What is a common challenge that entrepreneurs face regarding financing?
What is a common challenge that entrepreneurs face regarding financing?
Which method is considered a part of the financial planning process?
Which method is considered a part of the financial planning process?
Which of the following is an example of a lesser-known source of short-term finance?
Which of the following is an example of a lesser-known source of short-term finance?
What is primarily evaluated in Stage 3: Deal evaluation when attracting investors?
What is primarily evaluated in Stage 3: Deal evaluation when attracting investors?
Which stage of attracting investors involves how the initial investment will be structured?
Which stage of attracting investors involves how the initial investment will be structured?
What is a common concern for entrepreneurs regarding raising finance?
What is a common concern for entrepreneurs regarding raising finance?
What type of cost is associated with preparing the proposal to attract investors?
What type of cost is associated with preparing the proposal to attract investors?
Which of the following is considered a back-end cost when raising finance?
Which of the following is considered a back-end cost when raising finance?
What is often the ultimate method for raising growth capital for a business?
What is often the ultimate method for raising growth capital for a business?
What requirement must be met for a business to consider going public on the JSE?
What requirement must be met for a business to consider going public on the JSE?
Which activity is often preferred by investors after a deal is finalized?
Which activity is often preferred by investors after a deal is finalized?
What is the primary characteristic of medium-term finance?
What is the primary characteristic of medium-term finance?
Which of the following is an example of a source of long-term finance?
Which of the following is an example of a source of long-term finance?
What defines equity capital in the context of long-term finance?
What defines equity capital in the context of long-term finance?
Which of the following statements about retained earnings is true?
Which of the following statements about retained earnings is true?
Which institution is NOT typically involved in financing small and new businesses?
Which institution is NOT typically involved in financing small and new businesses?
What is considered a common informal source of finance for startups?
What is considered a common informal source of finance for startups?
What type of loans refers specifically to a funding method tied to immovable property?
What type of loans refers specifically to a funding method tied to immovable property?
What can be a limitation of sourcing equity capital from a sole proprietorship?
What can be a limitation of sourcing equity capital from a sole proprietorship?
What is a common characteristic of a stokvel?
What is a common characteristic of a stokvel?
What distinguishes venture capital from private equity?
What distinguishes venture capital from private equity?
What is the main purpose of crowdfunding?
What is the main purpose of crowdfunding?
Which of the following describes 'deal screening' in the investment process?
Which of the following describes 'deal screening' in the investment process?
What are typical members of a savings stokvel expected to do?
What are typical members of a savings stokvel expected to do?
Who typically provides venture capital?
Who typically provides venture capital?
What is a key benefit of crowdfunding for entrepreneurs?
What is a key benefit of crowdfunding for entrepreneurs?
Which stage follows making contact in the investment process?
Which stage follows making contact in the investment process?
Study Notes
Determining Financial Requirements
- Forecasting future sales, revenue, and expenses is crucial for determining financial needs.
- This involves projecting asset investment levels to support projected sales.
- The process culminates in determining financing needs throughout the planning period.
Short-Term Finance Sources (≤12 months)
- Trade credit: Credit extended between businesses.
- Bank credit: Overdraft facilities linked to accounts.
- Other sources: Bills of exchange, acceptance credits, factoring, customer advances, shipper's finance (availability may vary).
Medium-Term Finance Sources (1-3 years)
- Installment sales: Purchase price paid in installments.
- Leasing: Goods leased for a stated sum, paid in installments or a lump sum.
- Medium-term loans: Typically repaid over 24-60 months, used for working capital, bridging finance, or fixed asset acquisition.
Long-Term Finance Sources (≥3 years)
- Equity capital: Initial capital contribution. Variations exist across sole proprietorships, partnerships, close corporations, and companies (ordinary and preference shares).
- Debentures: Borrowed money via negotiable, transferable documents.
- Retained earnings: Profits reinvested instead of distributed as dividends.
- Long-term loans/mortgage bonds: Secured by immovable property.
Institutions Supporting Small Businesses
- Commercial banks
- Merchant banks
- Business Partners
- Small Enterprise Finance Agency (sefa)
- Industrial Development Corporation (IDC)
- Local business support centers
Informal Finance Sources
- 3 Fs: Family, fools, and friends (often a last resort).
- Stokvels: Savings systems with various objectives (savings clubs, loan stokvels, investment clubs).
Venture Capital and Private Equity
- Private equity: Capital from diverse investors (development finance institutions, pension funds, high-net-worth individuals).
- Venture capital: Private equity for early-stage businesses, sourced from venture capital organizations and angel investors.
Crowdfunding
- Raising small amounts of capital from many individuals via social media and crowdfunding websites.
- Expands the investor pool beyond traditional sources.
Attracting Investors (Private Placement)
- Five key stages: Making contact (deal origination), deal screening, deal evaluation (innovation, market conditions, competition), deal structuring (investment and return), post-deal activity (ongoing investor involvement).
Cost of Raising Finance
- Upfront costs: Proposal preparation (accountants, consultants, etc.).
- Marketing costs: Advertising, travel, brochures, and opportunity cost of the entrepreneur's time.
- Back-end costs: Investment banking fees, legal fees, brokerage fees, etc.
Initial Public Offering (IPO)
- "Going public" to raise growth capital.
- Requires meeting stock exchange listing requirements, including profit history.
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Description
This quiz covers the essentials of determining financial requirements with an emphasis on forecasting sales, revenue, and expenses. It explores sources of finance categorized by short-term, medium-term, and long-term, including trade credit, bank credit, leasing, and equity capital. Test your knowledge on financial planning and funding options available to businesses.
